1. table: Consider following three bonds whose features are summarized in the following Maturity (Years) Coupon Rate (%) YTM (%) Answer the following question by using Excel and show the cells that you use to calculate the values. 2 5 5.5 6 5 6 6 10 6.5 The face value of bonds is $100, YTM stands for yield to maturity, coupons are received annually. We structure a butterfly strategy (combination of bullet and barbell) in the following way: We sell 10000 5-year maturity bonds. We buy 5000 2-year maturity bonds and 5000 10-year maturity bonds. a) Suppose that one month later the YTM curve has changed. A flattening movement has happened so that the curve rotates around the body. We consider the following movement "+50/0/-50" meaning that the short wing YTM increases by 50 bps, the body does not move and the long wing YTM decreases by 50 bps. Compute the total return of the butterfly. b) Same question with a steepening movement "-50/0/+50".
1. table: Consider following three bonds whose features are summarized in the following Maturity (Years) Coupon Rate (%) YTM (%) Answer the following question by using Excel and show the cells that you use to calculate the values. 2 5 5.5 6 5 6 6 10 6.5 The face value of bonds is $100, YTM stands for yield to maturity, coupons are received annually. We structure a butterfly strategy (combination of bullet and barbell) in the following way: We sell 10000 5-year maturity bonds. We buy 5000 2-year maturity bonds and 5000 10-year maturity bonds. a) Suppose that one month later the YTM curve has changed. A flattening movement has happened so that the curve rotates around the body. We consider the following movement "+50/0/-50" meaning that the short wing YTM increases by 50 bps, the body does not move and the long wing YTM decreases by 50 bps. Compute the total return of the butterfly. b) Same question with a steepening movement "-50/0/+50".
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:1.
table:
Consider following three bonds whose features are summarized in the following
Maturity (Years) Coupon Rate (%)
YTM (%)
Answer the following
question by using
Excel and show the
cells that you use to
calculate the values.
2
5
5.5
6
5
6
6
10
6.5
The face value of bonds is $100, YTM stands for yield to maturity, coupons are received
annually. We structure a butterfly strategy (combination of bullet and barbell) in the
following way:
We sell 10000 5-year maturity bonds.
We buy 5000 2-year maturity bonds and 5000 10-year maturity bonds.
a) Suppose that one month later the YTM curve has changed. A flattening movement has
happened so that the curve rotates around the body. We consider the following
movement "+50/0/-50" meaning that the short wing YTM increases by 50 bps, the body
does not move and the long wing YTM decreases by 50 bps. Compute the total return of
the butterfly.
b) Same question with a steepening movement "-50/0/+50".
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