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Conduct a sensitivity analysis of a symmetric change

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1. Using the following details of the fixed-rate bond, conduct a sensitivity analysis of a symmetric change in the yield to maturity of 25 basis points (assume convexity is equal to zero and is irrelevant in this context):

Fixed Rate Bond Details

Current price $101.85
Duration 2.75 Years
Modified duration 2.68 Years
Yield to maturity 1.90%

2. Discuss why it is important to adjust for convexity when undertaking sensitivity analysis? What would happen if you forecast an increase in the yield to maturity on the bond price if you haven't adjusted for convexity?

Reference no: EM132594619

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