What are the price and yield of the 5-year

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Reference no: EM131036975

Consider the following Treasury yield curve:

	Maturity	YTM	Price
2-year	3/31/2018	2.00%	100-00
5-year	3/15/2021	3.50%	100-00
10-year	2/28/2026	4.75%	100-00

There are 2 portfolios, each with $100MM market value.

Portfolio I: 5-year bullet.

Portfolio II: 2-year/10-year barbell.

1) Today, you invest the $100MM in each portfolio, so that the portfolios have the same duration. The trades settle tomorrow. How much is invested in the 2-year and the 10-year?

Suppose on October 14, 2016 the 2-year ytm increases 50bp and the 10-year ytm increases 25 bp.

2) What are the price and yield of the 5-year that produce the same realized total rate of return for the bullet and the barbell for this 6-month investment period?

3) Discuss the issues/complexities involved with solving these questions.

Attachment:- Assignment.rar

Reference no: EM131036975

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