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Consider a bond with annual payments of $ 1 0 0 , a principal payment of $ 1 , 0 0 0 in 1 0
Consider a bond with annual payments of $ a principal payment of $ in years, and a cost of $ Assume a flat yield curve with a yieldtomaturity and annual compounding.
a What is the Duration of the bond?
b What is the Convexity of the bond?
Suppose the yield of the bond now drops to
c What is the estimated percentage price change using both the Duration and Convexity measures?
d What is the actual percentage price change?
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