A Bond Portfolio Manager Notices a Hump in the Yield

question 25

Multiple Choice

A bond portfolio manager notices a hump in the yield curve at the five year point.How might a bond manager take advantage of this event?

• A) Buy the 5 year bonds and short the surrounding maturity bonds
• B) Buy the 5 year bonds and buy the surrounding maturity bonds
• C) Short the 5 year bonds and short the surrounding maturity bonds
• D) Short the 5 year bonds and buy the surrounding maturity bonds

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Definitions:

Factor Prices

Prices paid for the use of factors of production, such as labor, land, and capital, important in understanding cost structures and economic value added.

Production Function

An economic model that describes the relationship between inputs used in production and the resulting output.

Average Cost

The total cost of production divided by the number of goods produced, also known as cost per unit.

Copper

A reddish-brown, malleable, ductile metallic element with high electrical and thermal conductivity, used in many alloys and as electrical conductors.