Suppose you have a callable bond with a call price of $1025 that is selling for $990. If the yield curve shifts up by .75% the bond price will fall to $930. If it shifts down by .75% the price will rise to the call price. Compute the bond's effective duration.
Effective duration is the expected price change for the bond when interest rate change by 1% Duration = [P - - P + ]... View the full answer