Question: You used second order approximation (with convexity correction) to establish the following: YTM increases by 1% Bond As price decrease 2.5% YTM decreases by 3%
You used second order approximation (with convexity correction) to establish the following: YTM increases by 1% Bond As price decrease 2.5% YTM decreases by 3% Bond As price increases 8.5% Use 2nd order approximation to calculate Bond As volatility for a 0.5% decrease in YTM. State your answer as a percentage with six digits after the decimal point. (ANSWER 1.312500%)
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