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Category > Business & Finance Posted 02 May 2017 My Price 6.00

Effective Duration and Convexity

Effective Duration and Convexity. You own a seven-year final maturity callable agency bond that is currently priced at $100.15 per $100 par value to yield 7.63 percent. If the prevailing market yield on this bond rises to 8.30 percent, the price will fall to $99.45. If the prevailing market yield on this bond falls to 6.93 percent, the price will fall to par value.

 

a. What is the effective duration of this bond?

b. What is the effective convexity of this bond?

c. Does this bond exhibit positive or negative convexity? Why?

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Alpha Geek
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Status NEW Posted 02 May 2017 10:05 AM My Price 6.00

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