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In the absence of default risk, changes in interest rates will cause immediate changes in bond prices. We use duration or a combination of duration
In the absence of default risk, changes in interest rates will cause immediate changes in bond prices. We use duration or a combination of duration and convexity to approximate the bond price changes.
Explain how duration with convexity can do better job than duration alone. Your explanation should discuss the scenario of an increasing or decreasing interest rate separately.
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