Question: Question 2 (2 marks) Consider the following two Treasury Securities BOND PRICE MODIFIED DURATION (YEARS) A $1000.00 6 B $800.00 7 Which bond will have

Question 2 (2 marks)

Consider the following two Treasury Securities

BOND PRICE MODIFIED DURATION (YEARS)
A $1000.00 6
B $800.00 7

Which bond will have the greater Dollar Price Volatility for a 25 Bases Point change in interest Rates?

Percentage price change = CONVEXITY EFFECT + DURATION EFFECT

However for this question use the estimate dollar price change as DP = -(modified Duration)P(DY)

(2 mark)

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