Consider a 6 coupon 20-year option-free bond selling at, Ask an Expert

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Consider a 6% coupon, 20-year option-free bond selling at 89.32. If the yield is decreased by 20 basis points from 7.0% to 6.8%, the price would increase to 91.32. If the yield increases by 20 basis points, the price would decrease to 87.38. Given this information, answer the following questions.

a. Using the formula for duration in the chapter, calculate the duration for this bond.

b. What is the approximate percentage price change if interest rates increase by 300 basis points?

c. Using the formula for convexity in the chapter, calculate the convexity for this bond.

b. What is the approximate percentage price change if interest rates increase by 300 basis points?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92676286

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