A:
A 7year, 6% coupon callable bond is currently trading at 96.25. The result of a backward induction valuation model indicates that if yields were to increase by 25 basis points, the new fair value of the bond would fall to 94.80. On the other hand, if the yields were to decrease by 25 basis points, the new fair value of the bond would rise to 96.98. Which of the following would best estimate the effective convexity of this bond?
A) 598
B) 342
C) 342
D) 264
A) 598
B) 342
C) 342
D) 264
The correct answer is: a)
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RELATED TERMS

European Callable Bond
A bond that can be redeemed by the issuer at a predetermined ... 
Call Risk
The risk, faced by a holder of a callable bond, that a bond issuer ... 
Coupon Bond
A debt obligation with coupons attached that represent semiannual ... 
Coupon
The annual interest rate paid on a bond, expressed as a percentage ... 
Bond Yield
The amount of return an investor will realize on a bond. Several ... 
ZeroCoupon Bond
A debt security that doesn't pay interest (a coupon) but is traded ...