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Calculate the effective duration of an option-free 20-year 7% annual-pay par bond based on a 25-basis point (bps) change in yield. a) What would be

Calculate the effective duration of an option-free 20-year 7% annual-pay par bond based on a 25-basis point (bps) change in yield.

a) What would be the approximate change in price and the actual change in price if the yield was to go up by 200bps?

b) Explain the difference between the approximate and actual change in price.

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