The Following Information Relates to Questions
Amy Mclaughlin Is

question 30

Multiple Choice

The following information relates to Questions
amy Mclaughlin is a fixed-income portfolio manager at uK-based delphi investments. one year ago, given her expectations of a stable yield curve over the coming 12 months and noting that the yield curve was upward sloping, Mclaughlin elected to position her portfolio solely in 20-year uS treasury bonds with a coupon rate of 4% and a price of 101.7593, with the expectation of selling the bonds in one year at a price of 109.0629. Mclaughlin expected the uS dollar to depreciate relative to the british pound by 1.50% during the year. Mclaughlin chose the 20-year treasury bonds because they were on the steepest part of the yield curve. Mclaughlin and Michaela donaldson, a junior analyst at delphi, are now discussing how to reposition the portfolio in light of Mclaughlin's expectations about interest rates over the next 12 months. She expects interest rate volatility to be high and the yield curve to experience an increase in the 2s/10s/30s butterfly spread, with the 30-year yield remaining unchanged. Selected yields on the treasury yield curve, and Mclaughlin's expected changes in yields over the next 12 months, are presented in exhibit 1. $\begin{array}{l}\text { EXHIBIT } 1 \text { Current Treasury Yield Curve and Forecasted Yields }\\\begin{array} { l c c c } \hline \text { Maturity (years) } & \text { Starting Yield (Current) } & \text { Forecasted Change in Yield } & \text { Ending Yield } \\\hline 2 & 1.01 \% & + 0.04 \% & 1.05 \% \\5 & 1.55 \% & + 0.40 \% & 1.95 \% \\10 & 2.75 \% & + 0.50 \% & 3.25 \% \\30 & 3.50 \% & + 0.00 \% & 3.50 \% \\\hline\end{array}\end{array}$
-given Mclaughlin's interest rate expectations over the next 12 months, which long/short structure would be most appropriate?

• A) condor: short wings, long body
• B) butterfly: short barbell, long bullet
• C) butterfly: long barbell, short bullet

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