MANUEL MORENO 81Table 4.6Relative behavior of two portfolios with respect to a decrease in
the slope of the yield curve
Yield Portfolio 1 Portfolio 2 Difference (%)
Change
Accumulated Yield (%) Accumulated Yield (%)
value value
5 80.957 −38.085 78.661 −42.677 −4.592
4.5 82.825 −34.349 80.802 −38.395 −4.045
4 84.766 −30.466 83.030 −33.938 −3.471
3.5 86.784 −26.430 85.349 −29.301 −2.870
3 88.884 −22.231 87.762 −24.474 −2.242
2.5 91.069 −17.860 90.275 −19.448 −1.588
2 93.346 −13.307 92.892 −14.215 −0.907
1.5 95.718 −8.562 95.617 −8.764 −0.201
1 98.193 −3.612 98.457 −3.085 0.527
0.5 100.776 1.552 101.416 2.832 1.279
0 103.473 6.946 104.5 9 2.053
−0.5 106.292 12.584 107.714 15.429 2.844
− 1 109.240 18.481 111.066 22.133 3.652
−1.5 112.326 24.652 114.562 29.125 4.473
− 2 115.557 31.115 118.209 36.419 5.304
−2.5 118.944 37.889 122.014 44.029 6.139
− 3 122.497 44.995 125.985 51.971 6.975
−3.5 126.227 52.454 130.130 60.261 7.806
− 4 130.145 60.290 134.457 68.915 8.624
−4.5 134.264 68.528 138.976 77.953 9.424
− 5 138.598 77.197 143.696 87.392 10.194(b) the additional gain for each portfolio is monotonic with the size of the
change in interest rates.
The second non-parallel change reflects an increase in the slope of the
yield curve. We assume that the change in the 5 (15) [20]-year interest rate is
equal to the change in the 10-year interest rate−1% (+0.5%) [+1%]. Results
for the bonds included in portfolio 1 are shown in Table 4.7 while Table 4.8
contains the results for both portfolios.
Table 4.7 shows similar results to those obtained in the two previous
changes: an increase in interest rates decreases the bond yield and the longest
bond provides the highest yields. Looking at Table 4.8, we obtain the same
conclusion as in previous changes: portfolio 2 outperforms portfolio 1 if