An 8 year bond has a yield to maturity of 6%. Which would result in the...

An 8 year bond has a yield to maturity of 6%. Which would result in the smallest % change in the bond’s price, a rise to 7% or a fall to 5%? Why?

Solutions

Expert Solution

The percentage increase of bond when YTM falls to 5% is more then percentage drop of bond when YTM increases to 7%.
Hence the smallest percentage change in the bond's price as YTM increase to 7%.

As per convexity and duration of bond the the convexity of bond is more as the price increases and convexity is less as the price falls.

jeff jeffy answered 2 years ago

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