Convexity × (ΔSpread)2
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A UK 12-year corporate bond with a 4.25% coupon is priced at £107.30. This bond’s duration and convexity are 9.5 and 107.2. If credit spreads narrow by 125 basis points, the estimated price of the bond is closest to: A. £120.95. B. £112.72. C. £121.84. |