Each bond in the table has a face value of $100.The coupon bonds pay annual coupons,and the next coupon is due in one year.Assume that the yield curve is flat and all yields are currently 3.5%.If interest rates are forecast to rise to 4% from 3.5%,what is your profit if you short-sell the bond with the biggest anticipated (percentage) decline.(Assume you short-sell only one bond.)

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Quizplus · Accepted Answer

T-Note Strip. It has the longest maturity and lowest coupon rate, thus it has the greatest interest rate risk. P_bond = 11ea7fdb_fc03_957d_a768_d5ce9ead85a6_TB2902_11 P_Strip = 11ea7fdb_fc03_957e_a768_6f7a932fe7c0_TB2902_11 = $67.56 Profit = 70.69 - 67.56 = $3.13

Each Bond in the Table Has a Face Value of $100.The