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Please help your PM to evaluate the sensitivity of your bond to relatively large interest rate (or yield) movements on the market! We have the
Please help your PM to evaluate the sensitivity of your bond to relatively large interest rate (or yield) movements on the market! We have the same bond and assumptions as in the previous exercise. Using its parameters, please answer the following questions: a) What is the convexity measure of this bond? (as this is a discrete case, please do not use continuous case formulas) b) How would affect a 5 percentage point ( 500 basis points) increase in yields the bond price? (What is "delta P" and what is the new P?) c) What would be the difference in question b), if the initial yield ( r ) would be - 500 basis point lower; - 500 basis point higher
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