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Question 3 (COMPULSORY) (18 marks) To form a portfolio, you have also been researching appropriate bonds to include along with your share. You find a
Question 3 (COMPULSORY) (18 marks) To form a portfolio, you have also been researching appropriate bonds to include along with your share. You find a bond with the following characteristics: Maturity of 12 years Coupon of 11% Yield of maturity of 9.5% Macaulay Duration of 6.7 years Convexity of 68 Is non-callable a) What is the approximate price change for this bond using the duration measure and assuming the yield to maturity increased to 9.7%? (5 marks) b) What is the approximate price change for this bond using the convexity measure and assuming the yield to maturity increased to 9.7%
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