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A company issues a 5-year step-up note paying semi-annual coupons. The coupon rate starts at 3.70% and goes up by 30 bps every year. The
A company issues a 5-year step-up note paying semi-annual coupons. The coupon rate starts at 3.70% and goes up by 30 bps every year. The issue sells at $87 (par value is $100).
- (a)What is the YTM (BEY basis) of this note?(2 marks)
- (b)Use a 10 bps rate shock to estimate the duration and the convexity of the
- note.(3 marks)
- (c)For yields in the range [2% ; 10%] with a step of 0.1%, draw the estimation error of the note price using duration only and duration & convexity, on the same graph.(3 marks)
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