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We have a 7%, 40 year bond. We buy it now at which point market...

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Finance

We have a 7%, 40 year bond. We buy it now at which point market yields are 7%. Interest rates rise substantially to 12% per annum. Its convexity is 30.

a. Derive the price alteration by using both duration and convexity. Explain convexity.

b. Also, find the exact price. Compare the two cases.

c. What strategies will enable us to attain a higher rate of return and protect the value of the portfolio more?

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