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James Walters, CFA, is an active fixed income portfolio manager. He manages a portfolio of fixed income securities worth$7,500,000 for an institutional client. Walters expects a widening yield spread between intermediate and long term securities. He would like to capitalize on his expectations and considers several transactions in a number of different securities. On 01/31/2005, Walters expects the yield of the 2-Year Treasury Note to decrease by 10 basis points and the yield of the 30-Year Treasury Bond to increase by 11 basis points. The characteristics of these two fixed income securities are shown in Table 1. Prices are quoted as a percentage of par value.
He also has the three year term structure of interest rates. This is shown in Table 2. Walters thinks of several different trading strategies that would allow him to take advantage of his expectations. He would like to evaluate each strategy to determine which offers the best risk-return tradeoff. Compute the yield spread between the T-Note and T-Bond given the information in Table 1. A. 0.00%. B. 0.29%. C. 0.75%. | ||||||||||||||||||||||||||||||||||||||||||||||||