A bond with $ 1000 par value is priced to yield 10 %. Its duration is 5 and its convexity is 4 (you can assume a market price of $700).
A. Calculate the change in price of this bond accounting for both duration and convexity at 11 %.
- State if it would be a rise or a fall in price.
B. Calculate the change in price of this bond accounting for both duration and convexity at 9 %.
- State if it would be a rise or a fall in price.