To calculate: The change in price of the both strategy.
Introduction: The change in price is calculated by the modified duration and change in yield. Price change is product of the modified duration to the interest rates of the strategy. It simply shows the change of the prices compared to the initial value.
Answer to Problem 12CP
The change in price of strategy
Explanation of Solution
Here, the formula of modified duration is given,
For strategy
Now price change for
Price change for
Hence the total price change is given below,
Hence percentage change in strategy
Calculate for strategy
Hence change in price of strategy
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Chapter 16 Solutions
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