Using bond prices to calculate duration and convexity: A 20-year bond with a 6.5% coupon paid semi-annually has a yield of 6.24%. Calculate the approximate modified duration and approximate convexity of the bond using a 1 bp change in yield. Using these, calculate the approximate change in bond price when the bond yield increases by 150 basis points. Calculate the exact change in the bond price when the bond yield increases by 150 basis points and compare the two.

Answer rating: 100% (QA)

To calculate the approximate modified duration and approximate convexity of the bond well need to use the bonds characteristics and the given yield Gi... View the full answer