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If you believed rates were going to rise, which bond would you choose? What is the trade-off you are making if rates do not rise?
If you believed rates were going to rise, which bond would you choose?
What is the trade-off you are making if rates do not rise?
Bond | Maturity | Coupon Rate | Yield | Price | Price @ yield +.25% |
Treasury | 2 | 1.250% | 1.350% | 998.03 | 993.14 |
Treasury | 5 | 1.625% | 1.750% | 994.04 | 982.24 |
Treasury | 10 | 2.250% | 2.150% | 1,008.96 | 986.73 |
Treasury | 30 | 2.750% | 2.800% | 989.90 | 941.31 |
Suppose that question above you bought the 5 year UST note at the price you computed.
If one year later market yields were 1.625%, what is your holding period return on the note?
Is it higher or lower than the yield at the time of purchase? Why?
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