24, A bond has duration of 3.25 years, YTM or 10%, semiannual coupon payments, a

Question

24, A bond has duration of 3.25 years, YTM or 10%, semiannual coupon payments, and is currently selling at 5971 According to the linear approximation based on modified duration (without convexity correction) approximately be the price change (in $) if the YTM increases by 0.5%? a. -$3.25 b. -$4.86 c. -$15.03 d. -$15.78 e. None of the above options is correct. A bond has modified duration of417 years, YTM of 8%, semiannual coupon payments, convexity of 20 currently selling at SI,015. According to the approximation based on modified duration with corre convexity, how much will approximately be the price change (in $) if the YTM increases by 1%? a. -$30.34 b. -$31.97 25, c. -$40.70 d. -$42.33 e. None of the above options is correct.

Explanation / Answer

Answer 24 Duration is Percentage change in price with 1 percent change in Yield

If yield increase by 1% price will fall by -3.25%

If yield increase by 0.5% price will fall by -1.625% (-3.25/1*.5)

Therefore change in price=971× (-.01625)

Change in price=-15.778

Correct answer is D

Answer 25

Question is partially visible since convexity value is not clearly visible please raise new question again I am stating the formula

(-Annual duration × change in Yield) + (1/2 × Annual convexity × change in yield^2)

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