Assume that the continuously compounded interest rate is 6%. A bond has 8% coupon paid annually, 3 years to maturity and par value of $100. Suppose the interest rate goes down to 5%. What would be the percentage change in the bond price implied by the duration plus convexity approximation?
Assume that the continuously compounded interest rate is 6%. A bond has 8% coupon paid annually, 3 years to maturity and par value of $100. Suppose the interest rate goes down to 5%. What would be the percentage change in the bond price implied by the duration plus convexity approximation?
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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Transcribed Image Text:Assume that the continuously compounded
interest rate is 6%. A bond has 8% coupon
paid annually, 3 years to maturity and par
value of $100. Suppose the interest rate goes
down to 5%. What would be the percentage
change in the bond price implied by the
duration plus convexity approximation?
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