Consider a Bond Selling at Par with Modified Duration of 12

question 68

Multiple Choice

Consider a bond selling at par with modified duration of 12 years and convexity of 265.A 1 percent decrease in yield would cause the price to increase by 12%,according to the duration rule.What would be the percentage price change according to the duration-with-convexity rule?

• A)21.2%
• B)25.4%
• C)17.0%
• D)13.3%
• E)none of the above.

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