# A risk manager is analyzing a long-dated bond that matures in 25 years and pays 8% coupon. He is...

## Question:

A risk manager is analyzing a long-dated bond that matures in 25 years and pays 8% coupon. He is told that the modified duration is 11.65 years and the bond convexity is 165. The bond is currently trading at 8% yield to maturity. Assuming a par value of \$1000, should the yield to maturity increase by 1.5%, compute the expected bond price using both duration and convexity adjustments.

## Bond:

A bond is a type of fixed-income security that generate a fixed return in the form of a coupon for the investor. The coupon is paid semi-annually or annually. The investor also gets in return the face value of the bond at maturity of the bond.

## Answer and Explanation:

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Information provided:

Duration = 11.65

Change in yield = 1.5%

Convexity = 165

Solving:

{eq}Change \ in \ Price \ (\%) \ = \ -Duration \ \times \...

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#### Learn more about this topic: Bonds: Understanding Investment Performance

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Chapter 8 / Lesson 8
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In this video lesson, you will learn how to calculate the worth of a bond over time. Learn how interest payments are calculated. See just how much money can be earned from keeping a bond over time.