Sample 1 asked for the best PF when short term rates are expected to fall by 25bps and long term rates increase by 75bps. The solution was short duration bullet (choices long/short, barbell, bullet) 1. What if the opposite was given? Short fall by 75bps and long increase by 25bps? 2. What if ST increase 25bps and LT decrease by 75bps? 3. ST fall 75bps and LT increase by 25bps? Thanks for your thoughts.
gh Wrote: ------------------------------------------------------- > Sample 1 asked for the best PF when short term > rates are expected to fall by 25bps and long term > rates increase by 75bps. The solution was short > duration bullet (choices long/short, barbell, > bullet) > > 1. What if the opposite was given? Short fall by > 75bps and long increase by 25bps? short bullet > > 2. What if ST increase 25bps and LT decrease by > 75bps? long bullet > > 3. ST fall 75bps and LT increase by 25bps? Is this the same as 1?
Nice catch. Thanks. All 4 cases are: 1. ST decrease 25bps, LT increase 75bps (sample exam 1) 2. ST increase 25bps, LT decrease 75bps 3. ST decrease 25bps, LT increase 75bps 4. ST decrease 75 bps, LT increase 25bps Thanks again!
in all 4 cases you would favor bullet if ST decreases and LT increases, you would go with short-term bullet if ST increases adn LT decrease, you would got with long-term bullet
Thanks!