单选题
James Waiters, CFA, is an active fixed income portfolio manager. He
manages a portfolio of fixed income securities worth $ 7500000 for an
institutional client. Waiters 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/ 06, Waiters 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
and the Price Value of a Basis Point is per $1 million par amount.
|
Table 1 Security Characteristics |
|
|
2 - Year T - Note |
30 - Year T - Bond |
|
Maturity |
01/31/08 |
11/15/35 |
|
Bid-Ask Spread (basis points) |
5.0 |
5.0 |
|
Coupon |
5.375% |
6.125% |
|
Bid Price |
99.7236 |
104.6086 |
|
Ask Price |
99.7736 |
104.6586 |
|
Yield to Maturity |
5.51% |
5.80% |
|
Price Value of a Basis Point |
186.6484 |
1461.1733 |
He also has the three
year term structure of interest rates. This is shown in Table 2.
|
Table 2 |
|
Term Structure of Interest Rates |
|
Year |
Spot Rate |
|
0.50 |
5.5227% |
|
1.00 |
5.5537% |
|
1.50 |
5.5444% |
|
2.00 |
5.5205% |
|
2.50 |
5.5114% |
|
3.00 |
5.5156% |
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. James wants to translate
the estimated price change into a change in value of a position in a particular
security. What is the best estimate of the change in value of a $100000
principal position in Treasury Notes if yields change by - 10 basis points?
- A. $1866.48.
- B. $18.66.
- C. $186.65.