
Explanation:
The correct answer is A (93.7). The percentage change in the bond's price is calculated using the formula:
Substituting the given values:
This results in a price decline of approximately 5.77%. The new bond price is:
Rounded to 93.7, which matches option A.
Option B (94.3) is incorrect because it uses par value (100) instead of the given bond price (99.4).
Option C (94.9) is incorrect because it incorrectly treats convexity as a positive value, leading to an inaccurate price adjustment.
A bond is priced at 99.4 with a modified duration of 6.9 and an annual convexity of -212. If the market yield increases by 75 basis points, the bond's price will be closest to:
A
93.7
B
94.3
C
94.9
No comments yet.