James Waiters, CFA, is an active fixed income portfolio manager. He manages a portfolio of fixed income securities worth $ 7500000 for an institutional client. Waiters expects a widening yield spread between intermediate and long term securities. He would like to capitalize on his expectations and considers several transactions in a number of different securities. On 01/31/ 2005, Walters expects the yield of the 2-Year Treasury Note to decrease by 10 basis points and the yield of the 30-Year Treasury Bond to increase by 11 basis points. The characteristics of these two fixed income securities are shown in Table 1. Prices are quoted as a percentage of par value.

A．Table 1

B．Security Characteristics

C．

D．2 -Year T-Note

E．30 -Year T-Bond

F．Maturity

G．01/31/07

H．11/15/34

I．Bid-Ask Spread (basis points)

J．5.0

K．5.0

L．Coupon

M．5.375%

N．6.125%

O．Bid Price

P．99.7236

Q．104.6086

R．Ask Price

S．99.7736

T．104.6586

U．Yield to Maturity

V．5.51%

W．5. 80%

X．Price Value of a Basis Point

Y．186.6484

Z．1461.1733