4. Your fixed income arbitrage hedge fund has $100 in capital. Assume that you observe the following two U.S. Treasury bonds today (both bonds just paid their last coupon payment yesterday):

Bond	Issue Date	Maturity Date	Coupon Rate	Price (Dirty)	Yield-to-Maturity	Modified Duration
A	6/15/00	6/15/30	4.50%	700	2.00%	6.5
B	6/15/10	6/15/30	2.50%	1,000	2.50%	7.5

[A] Briefly explain how you could take advantage of an existing arbitrage opportunity by buying 1 of the bonds and short selling 1 of the other bonds. (You will buy or sell exactly 1 of each bond.)

[B] If your broker charged you a 2% haircut on a repurchase agreement for your long position and required 5% margin on your short position, how much cash would you have to invest to execute both trades?

[C] Is this trade eventually guaranteed to be profitable? What are the risks for your $100 fund?

[D] If the yields shifted higher, but the spread remained the same, would you expect to make a profit or a loss, or would you make $0 in net profit? Briefly explain. (No calculations required to answer this part)

[E] Briefly explain whether you believe that fixed income arbitrage is a high or low Beta strategy.