The Delfain Corporation reported a significant improvement in profitability that was followed by a material upgrade in its credit rating. The market responded by immediately requiring a 100 basis point narrower spread to Gilts on Delfain’s 8-year bond. If the bond’s modified duration is 6.0 and its convexity is 55.0, the return impact of this change is closest to:
A 6.28%.
B –5.73%.
C 7.10%.
A is correct. The return impact of a 60 bps fall in the bond’s yield can be computed as:
Return impact ≈ –(MDur × ΔSpread) + ½Cvx × (ΔSpread)2
Return impact ≈ –(6.0 × –0.01) + ½(55.0) × (–0.01)2 = 6.28%
老师,公式不是应该为mac duration而不是mod duraton吗?
