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Author Question: Consider a Sears 9% bond and a US Treasury 9.25% bond both maturing in ten years. The current yield ... (Read 77 times)

WWatsford

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on: Apr 25, 2021
Consider a Sears 9% bond and a US Treasury 9.25% bond both maturing in ten years. The current yield to maturity on the Sears bond is 5.3% compared to the Gov't bond yield of 4.5%. The higher yield on the Sears bond reflects Sears's higher probability of default. Historically, the difference between the yields of the two bonds has been 1.2%. This difference is called the "yield spread." Today the yield spread is only 0.8%. You expect that the yield spread will widen back to its historic value over the next few days. Assume that both yields will change equally to bring the spread back to its historic position and assume that the mid-point of the spread will stay where it is. What positions do you take in the two bonds to profit from the expected changes?
◦ Buy Sears, Sell Gov't
◦ Buy Sears, Buy Gov't
◦ Sell Sears, Buy Gov't
◦ Sell Sears, Sell Gov't
Corporate Finance Online ¦ Eakins, McNally ¦ 2nd Edition
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Marked as best answer by WWatsford on Apr 25, 2021

cloudre37

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Reply #1 on: Apr 25, 2021
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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WWatsford

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Reply 2 on: Apr 25, 2021
Excellent

31809pancho

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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