You are looking at a 1 year instrument that pays a 4%p.a. yield, there is also an instrument that is paying a 6% yield that is a ten year debt instrument. Firstly, how do you determine/acknowledge the difference in the yield in general? Secondly, make a zero cost strategy for a period of 10 years in order to see a profit with the two instruments ($1000 reference size and you wont pay from your pocket). Whats the profit you make during the period? Is this profit risk free?
You are looking at a 1 year instrument that pays a 4%p.a. yield, there is also an instrument that is paying a 6% yield that is a ten year debt instrument. Firstly, how do you determine/acknowledge the difference in the yield in general? Secondly, make a zero cost strategy for a period of 10 years in order to see a profit with the two instruments ($1000 reference size and you wont pay from your pocket). Whats the profit you make during the period? Is this profit risk free?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You are looking at a 1 year instrument that pays a 4%p.a. yield, there is also an instrument that is paying a 6% yield that is a ten year debt instrument.
Firstly, how do you determine/acknowledge the difference in the yield in general?
Secondly, make a zero cost strategy for a period of 10 years in order to see a profit with the two instruments ($1000 reference size and you wont pay from your pocket). Whats the profit you make during the period? Is this profit risk free?
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