Consider a bond with annual payments of $100, a principal payment of $1,000 in 10 years, and a cost of $1000.  The Duration of the bond is 6.759 and the Convexity of the bond is 52.792, assuming a flat yield curve with a 10% yield-to-maturity and annual compounding. 

 

Suppose now the flat yield curve shifts up to a 12% yield to maturity.

 

What is the estimated percentage price change using both Duration and Convexity measures?

 

What is the actual percentage price change?

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To calculate the estimated percentage price change using both Duration and Convexity measures we can ... View the full answer