You Currently Hold a 7-Year ?Xed Rate Bond Paying 5

question 1

Essay

You currently hold a 7-year ?xed rate bond paying 5% annually. You would like to hedge against changes in the level and the slope of the yield curve and you plan to use a 1-year zero coupon bond and a 7-year zero coupon bond. Use the following table to compute the adequate positions in the hedging instruments.

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Definitions:

Punished

The act of imposing a penalty or negative consequence on a behavior to decrease its occurrence.

Dependent Variable

In a scientific experiment, the variable that is tested and measured to see if it is influenced by the independent variable.

Independent Variable

In scientific research, the variable that is manipulated or changed to observe its effect on the dependent variable.

Manipulates

To control or influence something or someone cleverly, often in an unfair or deceitful manner.