Suppose Two Zero-Coupon Bonds Are Available for Trading That Have

Multiple Choice

Suppose two zero-coupon bonds are available for trading that have face values of $100 each.Current yields are 2 percent for the two-year bond and 5 percent for the ten-year bond.As the economy is expanding,you believe that the Federal Reserve Bank will raise short-term rates by 25 basis points (or 0.25 percent) to prevent the economy from overheating.The Fed has no influence over long-term interest rates and you expect them to remain unchanged.If you set up a spread strategy and it works as conjectured,then you will make a profit of:

A) $0.26
B) $0.33
C) $0.47
D) $0.94
E) None of these answers are correct.