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3. Consider a 4% coupon 30-year option-free bond selling at 72.3244 and yielding 6%. If the yield is decreased by 20 basis points, the price
3. Consider a 4% coupon 30-year option-free bond selling at 72.3244 and yielding 6%. If the yield is decreased by 20 basis points, the price would increase to 74.5492. If the yield increases by 20 basis points, the price would decrease to 70.1988.
a. Calculate the modified duration.
b. What does this number tell us?
c. What would be the approximate dollar price change for a 50 basis point change in yield?
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