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Investor A enters into a 2y10y curve steepening trade by taking opposite positions on the 2year bond and the 10year bond. Note that the PVBP2year=0.015,
Investor A enters into a 2y10y curve steepening trade by taking opposite positions on the 2year bond and the 10year bond. Note that the PVBP2year=0.015, PVBP10year=0.075
- What is his view about the slope of the curve measured as the yield spread between long- tenor minus short-tenor yield?
- Which bond does he buy and which one does he sell in order to implement a curve steepening trade?
- In order to have a duration neutral trade how much money should he invest in 2year bond given that he allocates USD10,000 in 10yr bond?
- Between the curve flattening and a parallel shift, which one of the two would hurt the investor less, meaning suffer lower losses?
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Fundamentals Of Corporate Finance
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
13th Edition
1265553602, 978-1265553609
