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标题: Fixed Income question [打印本页]

作者: RealEstate_CFA    时间: 2011-7-11 18:34     标题: Fixed Income question

An analyst determines that a 5.50 percent coupon option-free bond, maturing in 7 years, would experience a 3 percent decrease in price if market interest rates rise by 50 basis points. If market interest rates instead fall by 50 basis points, the bond’s price would increase by:

A. exactly 3%.
B. less than 3%.
C. more than 3%.

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The answer is C which in the light of convexity adjustment is the right choice, but is there any reason as to why one cannot assume that the decrease/increase in price was calculated using duration.




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