NO.PZ2023032703000095
问题如下：
The conversation next turns to the state
of the economy. Another member of Thorn’s team, David Yung, concludes that the
economy will weaken, causing the yield curve to experience a downward parallel
shift. Yung proposes two trades.
l Trade 1: Sell a 5-year A-rated callable
corporate bond, Buy a 5-year A-rated non-callable bond of the same issuer
l Trade 2: Sell a 10-year fixed-rate
corporate bond, Buy a 10-year floating-rate bond of the same issuer
Determine, given Yung’s conclusions,
whether each of his proposed trades would most likely be profitable. Justify
each response.
选项：
解释：
Correct Answer:
Trade 1 should be executed. Interest rates decline when the economy weakens. Due to negative convexity, callable bonds underperform non-callable bonds during periods of declining interest rates. Callable bonds have a price limit imposed by the call price. Consequently, the bond would most likely be called when rates decline. The trade will, therefore, be profitable.
Trade 2 should not be executed. Given Yung’s economic outlook and anticipation of a parallel downward shift in the yield curve, duration should be increased, not decreased. Fixed-rate bonds have higher duration than floating-rate bonds as coupons are fixed rather than adjusting periodically to market interest rates. Selling higher-duration bonds to invest in lower-duration bonds as rates decline would not be appropriate.
老师请问这一题, 这样写可以吗? 解释原因和答案的要点不一样
Trade 1: It may be profitable.
Because callable corporate bond is negatively convex, when the yield curve experiences a downward parallel shift, the price of callable bond will be lower than the price of a non-callable bond of the same issuer. So it may be profitable to implement trade 1.
Trade 2: It may be not profitable.
when the yield curve experiences a downward parallel shift, the market is bullish for bonds. But a 10-year floating-rate bond has a floating-rate coupon which will decrease as well, at this time its price will lower than a 10-year fixed-rate corporate bond.
