Please answer the following question: The modified duration and convexity of a 6%, 25 year bond selling to yield 9% is 10.62 and 91.46 respectively. If the required yield increases by 300 basis points from 9% to 12% what is the approximate percentage change in the price of the bond due to a) duration, b) convexity, c) duration and convexity? d) If the actual change is -26.50%, compare your results from a) and c) which provides a better approximation?
Please answer the following question: The modified duration and convexity of a 6%, 25 year bond selling to yield 9% is 10.62 and 91.46 respectively. If the required yield increases by 300 basis points from 9% to 12% what is the approximate percentage change in the price of the bond due to a) duration, b) convexity, c) duration and convexity? d) If the actual change is -26.50%, compare your results from a) and c) which provides a better 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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Please answer the following question:
The modified duration and convexity of a 6%, 25 year bond selling to
yield 9% is 10.62 and 91.46 respectively. If the required yield increases
by 300 basis points from 9% to 12% what is the approximate percentage
change in the price of the bond due to
a) duration,
b) convexity,
c) duration and convexity?
d) If the actual change is -26.50%, compare your results from a) and c)
which provides a better approximation?
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