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Consider a Bond Selling at Par with Modified Duration of 12

Question 21

Multiple Choice

Consider a bond selling at par with modified duration of 12 years and convexity of 265.A 1 percent decrease in yield would cause the price to increase by 12%,according to the duration rule.What would be the percentage price change according to the duration-with-convexity rule?


A) 21.2%
B) 25.4%
C) 17.0%
D) 13.3%
E) None of these is correct.

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