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Author Question: Safe Corp. has zero coupon bond with 10 years to maturity and a yield of 5%. Risky Company also has ... (Read 66 times)

captainjonesify

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on: Apr 25, 2021
Safe Corp. has zero coupon bond with 10 years to maturity and a yield of 5%. Risky Company also has a zero coupon bond with 10 years to maturity, but the yield on the bond is 5.25%. The higher yield on the Risky bond reflects Risky's higher probability of default. Historically, the difference between the yields of the two bonds has been 1%. This difference is called the "yield spread." Today the yield spread is only 0.25%. 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?
◦ Long the Risky bond; Long the Safe bond
◦ Short the Risky bond; Short the Safe bond
◦ Short the Risky bond; Long the Safe bond
◦ Long the Risky bond; Short the Safe bond
Corporate Finance Online ¦ Eakins, McNally ¦ 2nd Edition
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Marked as best answer by captainjonesify on Apr 25, 2021

Cheesycrackers

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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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captainjonesify

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Reply 2 on: Apr 25, 2021
Excellent

scikid

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

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