Suppose that when the government par curve is raised and lowered by 25 bps, the new full
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Question:
Suppose that when the government par curve is raised and lowered by 25 bps, the new full prices for the callable bond from the model are 99.050120 and 102.890738, respectively. The arbitrage-free price today is 101.060489. Calculate the bond's effective duration and effective convexity.
Based on the answers on number 1, what is the expected price of a bond if the yield declines by 75bps?
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