Erna Smith, a portfolio manager, has two fixed-rate bonds in her portfolio: a callable bond (Bond X)
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Erna Smith, a portfolio manager, has two fixed-rate bonds in her portfolio: a callable bond (Bond X) and a putable bond (Bond Y). She wants to examine the interest rate sensitivity of these two bonds to a parallel shift in the benchmark yield curve. Assuming an interest rate volatility of 10%, her valuation software shows how the prices of these bonds change for 30 bps shifts up or down:The effective duration for Bond Y is closest to:
A. 0.48.
B. 0.96.
C. 1.58.
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