Three zero couple bonds: i. 5y zero at 2.80%; ii. 10y zero at 3.0%; iii. 30y zero at 3.20%
Answers
Negative zero error: When zero of a circular scale is above the base line of the pitch ..
Explanation:
Three zero couple bonds:
i. 5Y zero at 2.80%; ii. 10Y zero at 3.0%; iii. 30Y zero at 3.20%
a. Calculate duration and convexity for all three;
b. If you want to combine 5Y and 30Y zero to match the 10Y zero in dollar duration, what is the weight in 5Y and 30Y respectively?
(hint: i. weights add up to 100%; ii. dollar amount in 10Y does not matter. You can make one up, say $1 million)
c. The combination of 5Y and 30Y is a barbell. 10Y only position is a bullet. What is the daily interest accrual of $1M in barbell portfolio, and $1M in bullet, respectively?
d. What is the convexity of the barbell portfolio?
e. What is the convexity of a dollar duration neutral that is long barbell and short bullet (long $1M of barbell and short $1M of bullet)?
f. For a 2 bps movement up or down, what is the PnL of long short portfolio above?
g. For a 10 bps movement up or down, what is the PnL of long short portfolio above?
h. What is the breakeven level of single day parallel yield change? (hint: breakeven level is achieved when convexity profit is offset by daily internal cost.)