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Assume the 1, 2, and 3 year par rates are 2.48%, 3.45%, 4.44%, respectively. The current value of a risky 3 year bond with a
Assume the 1, 2, and 3 year par rates are 2.48%, 3.45%, 4.44%, respectively. The current value of a risky 3 year bond with a 3.19% coupon, which is callable at par in 2 years, is $99.67 per $100 of par value. To compute the effective duration of this bond, you calculate its implied price for a 50 bp curve shift up and down to be 99.31 and 100.01 respectively. What is the effective duration of this bond?
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