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BOND MATH: The Theory Behind the Formulas by Donald J. Smith

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A Real Bond Portfolio

This portfolio is comprised of four U.S. Treasury securities, including positions in 2-year and 10-year coupon T-notes, the 30-year coupon T-bond, and, just to make things interesting, the 30-year zero-coupon P-STRIPS. Figures 9.1 to 9.4 show the Bloomberg Yield Analysis (YA) and Option-Adjusted Spread Analysis (OAS1) pages for each security for settlement on November 15, 2010. Conveniently (and intentionally) each Treasury matures on November 15th, so the accrued interest is zero and all future cash flows are scheduled for May 15th and November 15th of each year. That makes it easy to build a spreadsheet to illustrate the portfolio statistics.

Table 9.1 summarizes the risk and return characteristics on the individual Treasuries ...

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