Suppose that you are given the following information about two callable bonds that can be...
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Suppose that you are given the following information about two callable bonds that can be called immediately: Estimated Percentage Change in Price if Benchmark Yield Curve Change by BOND -100 BASIS POINTS +100 BASIS POINTS ABC +5% -8% XYZ +22% -17% a) Which bond displays negative convexity, and why? (4pt) [a] {ABC or XYZ} b) What's the effective duration for bond ABC? (4pt) [b] Suppose that you are given the following information about two callable bonds that can be called immediately: Estimated Percentage Change in Price if Benchmark Yield Curve Change by BOND -100 BASIS POINTS +100 BASIS POINTS ABC +5% -8% XYZ +22% -17% a) Which bond displays negative convexity, and why? (4pt) [a] {ABC or XYZ} b) What's the effective duration for bond ABC? (4pt) [b]
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