Hi,
Been struggling way to long with this question now. Any one here that know why i cant calculate expected return of a carry trade strategy using zero coupons? Here are my calculations:
Long position / non finance position
Start price = 739.05 (n=10, YTM = 3.07%, PMT = 0)
End price = 808.67 (n=8, YTM = 2.69%, PMT = 0)
Return = 808.67 - 739.05 / 739.05 = 9.42 %
Short position / finance position
Start price = 981.85 (n=2, YTM=0.92%, PMT = 0)
End price = 1000 (n=0)
Return = 1000 - 981.85 / 981.85 = 1.84 %
Total profit according to my (wrong) = (9.42 - 1.84 %) (1000) = 75.80
Correct answer = 70.14 (in the correct answer they use coupons, but i dont fully grasp why you cant use zero)
Thanks in advance!