Butterfly Trade It is November 15, 2018. Consider the following Treasury yield curve: Maturity YTM Price 2-year 10/31/2020 2.00% 100-00 5-year 10/31/2023 3.50% 100-00 10-year 10/15/2028 4.75% 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 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 return basis? 2 you Choose gwl(et or tlutenlne Zt the qleld cur 3.) Discuss the issues/complexities involved with solving these questions. All your answers must be typed. te. Butterfly Trade It is November 15, 2018. Consider the following Treasury yield curve: Maturity YTM Price 2-year 10/31/2020 2.00% 100-00 5-year 10/31/2023 3.50% 100-00 10-year 10/15/2028 4.75% 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 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 return basis? 2 you Choose gwl(et or tlutenlne Zt the qleld cur 3.) Discuss the issues/complexities involved with solving these questions. All your answers must be typed. te