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Suppose bonds Y and Z are identical in terms of duration and coupon but bond Z is more convex. Market participants expect interest rates to
Suppose bonds Y and Z are identical in terms of duration and coupon but bond Z is more convex. Market participants expect interest rates to fall sharply. Which bond will be preferred by investors? Which bond will have a higher required yield? How much will investors be willing pay for the preferred bond? What determines this price? When do investors sell convexity?
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