Butterfly Trade It is April 1, 2020. Consider the following Treasury yield curve: 2-year 6-year 11-year Maturity Coupon 3/31/2022 2.00% 9/30/2025 3.50% 9/15/2030 4.75% Price 100-00 100-00 100-00 There are 2 portfolios, each with $100MM market value. Portfolio I: 5-year bullet. Portfolio II: 2-year/10-year barbell. 1.) Today, you invest the $100MM in each portfolio, so that the portfolios have the same duration. The trades settle tomorrow, April 2. a.) How much is invested in the 2-year and in the 10-year? 2.) Suppose you believe that 9 months from today the 2-year yield will be 50 basis points higher and the 10-year yield will be 25 basis points lower. a.) Which strategy outperforms on a total rate of retum basis? 3.) Discuss the issues/complexities involved with solving question #2. Butterfly Trade It is April 1, 2020. Consider the following Treasury yield curve: 2-year 6-year 11-year Maturity Coupon 3/31/2022 2.00% 9/30/2025 3.50% 9/15/2030 4.75% Price 100-00 100-00 100-00 There are 2 portfolios, each with $100MM market value. Portfolio I: 5-year bullet. Portfolio II: 2-year/10-year barbell. 1.) Today, you invest the $100MM in each portfolio, so that the portfolios have the same duration. The trades settle tomorrow, April 2. a.) How much is invested in the 2-year and in the 10-year? 2.) Suppose you believe that 9 months from today the 2-year yield will be 50 basis points higher and the 10-year yield will be 25 basis points lower. a.) Which strategy outperforms on a total rate of retum basis? 3.) Discuss the issues/complexities involved with solving question #2