The percentage change in bond price can be estimated using the duration-convexity formula:

$\%\Delta P = -D \times \Delta y + \frac{1}{2} \times C \times (\Delta y)^2$

Where:

• $D$ = Modified duration = 23.657
• $C$ = Convexity = 678.98
• $\Delta y$ = Change in yield = -0.0020 (20 bps reduction)

Substituting the values:

$\%\Delta P = -23.657 \times (-0.002) + \frac{1}{2} \times 678.98 \times (-0.002)^2$

$\%\Delta P = 0.047314 + 0.001358 = 0.04867$

$\%\Delta P \approx 4.87\%$

The result is positive because a decrease in yield (and a narrowing of credit spread) leads to an increase in bond price. Both the duration effect and the convexity adjustment contribute positively to the price gain.