Question
In: Finance
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 agoRelated Solutions
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