KIC000079 - 6 Month Performance Parallel shift will cause...

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6 Month Performance Parallel shift will cause bullet to outperform barbell until shift is big enough for convexity of barbell to swamp the 25 bps difference in yield => +/- 100 bps Flattening good or bad for barbell relative to bullet? => Good since long end changes less and it has highest duration contribution Steepening good or bad for barbell relative to bullet? => Bad until shift is large enough for convexity to swamp duration impact. Relative Perlonnance of Bullet Portfolio and Barbell Portfolio OYer a Six-Month Investment Horizon Flattening Steepening Yield Parallel Shift Shift Change for C Shift A" (+25 A "'C-25 B-(-25 B '" (+25 -1.500 -0_20 -1.97 147 -1.000 0.06 -1.54 1.57 -0.750 0.15 -1.38 1.58 -0.500 0,21 -1.24 1.57 -0.250 0.24 -U4 1.53 0.000 0.25 -1.06 1.48 0.250 0,24 -1.0] 1.41 0.500 0.21 -0.98 1.32 0.750 0.16 -0.97 1.21 1.000 009 -0.98 1.09 1.500 -0.08 -1.05 0.81 Best Strategy? 1 Rates not likely to shift more than 1% in 6 months. So make bet on parallel v~epening vs flattening
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This note was uploaded on 09/06/2011 for the course FIN 428 taught by Professor Hood during the Fall '11 term at Iowa State.

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KIC000079 - 6 Month Performance Parallel shift will cause...

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