Consider a 6% semiannual coupon paying bond with 4 years to maturity that is currently...
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Consider a 6% semiannual coupon paying bond with 4 years to maturity that is currently priced at par (YTM=6%) and has an approximate modified duration of 3.51 years. If the YTM increases/decreases by 20bps., the price of the bond increases/decreases to 99.301 and 100.705, respectively. Calculate the approximate convexity and the effect of a 50bp change in yield on the bond price:
a) Convexity = 7.00 and % change in bond price is 0.756%
b) Convexity = 15.00 and % change in bond price is 1.56%
c) Convexity = 22.5 and % change in bond price is 2.34%
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