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We have a 7%, 40 year bond. We buy it now at which point market yields are 7%. Interest rates rise substantially to 12% per

We have a 7%, 40 year bond. We buy it now at which point market yields are 7%. Interest rates rise substantially to 12% per annum. Its convexity is 30.

a. Derive the price alteration by using both duration and convexity.

b. Also, find the exact price. Compare the two cases.

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