James Waiters, CFA, is an active fixed income portfolio manager. He manages a portfolio of fixed income securities worth $ 7500000 for an institutional client. Waiters expects a widening yield spread between intermediate and long term securities. He would like to capitalize on his expectations and considers several transactions in a number of different securities. On 01/31/ 2005, Walters expects the yield of the 2-Year Treasury Note to decrease by 10 basis points and the yield of the 30-Year Treasury Bond to increase by 11 basis points. The characteristics of these two fixed income securities are shown in Table 1. Prices are quoted as a percentage of par value.
A．Table 1
B．Security Characteristics
C．
D．2 -Year T-Note
E．30 -Year T-Bond
F．Maturity
G．01/31/07
H．11/15/34
I．Bid-Ask Spread (basis points)
J．5.0
K．5.0
L．Coupon
M．5.375%
N．6.125%
O．Bid Price
P．99.7236
Q．104.6086
R．Ask Price
S．99.7736
T．104.6586
U．Yield to Maturity
V．5.51%
W．5. 80%
X．Price Value of a Basis Point
Y．186.6484
Z．1461.1733
