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What price would be predicted by using duration

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Question - Convexity - A newly issued bond has a maturity of 10 years and pays a 7% coupon rate (with coupon payments coming once annually). The bond sells at par value of $100.

(a) What are the duration, modified duration and dollar duration of the bond? What is its convexity?

(b) Find the actual price of the bond assuming that its YTM immediately increases from 7% to 8%?

(c) What price would be predicted by using duration? What is the prediction error?

(d) What price would be predicted by using duration-with-convexity? What is the prediction error?

Reference no: EM133073453

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