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Calculate the price of the bond using duration

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Reference no: EM132840555

Question - A fund manager is holding fixed-interest bonds with a face value of $4750000. The bonds pay an annual coupon of 6.00 per cent per annum and will mature in exactly three years. The fund manager has forecast that interest rates will rise by 50 basis points. Based on the forecast change in interest rates:

(a) Calculate the price of the bond using duration.

(b) Calculate the price of the bond using the bond pricing formula.

(c) Draw and fully label a diagram to explain the relationship between duration and convexity using the data from (a) and (b).

Reference no: EM132840555

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