Question $20$

You have the following information on three bonds:

If you believe that AAA bonds should yield $6\mathrm{.}5\%$ and the correct spread between

AAA and $BBB$ bonds should be $100$ basis points and between $BBB$ and $CCC$ bonds

should be $150$ basis points. The profit maximising $($or loss minimising$)$ strategy

that you should adopt assuming that you must remain $100\%$ invested in bonds is:

A$)$ Buy bond A$,$ short sell Bond B and short sell Bond C$.$

B$)$ Short sell bond A$,$ buy Bond B and buy Bond C

C$)$ Buy bond A$,$ short sell Bond B and buy Bond C

D$)$ Short sell bond A$,$ buy Bond B and short sell Bond C