1. Your friend is a fixed income trader who makes a market in corporate bonds. One day after work, you notice a sheet that falls out of her valise that looks like this:
Bond
Current price
Price after 1% rate hike
Price after 1% rate drop
ABC Co. 5.25% 1.1.2029
$921.50
$857.00
$986.01
DEF Co. 4.25% 7.1.2021
$877.50
$824.85
$930.15
GHI Co. 3.25% 1.1.2018
$1,021.50
$980.64
$1062.36
After looking at this for a moment, you realize that the property not indicated on the sheet that is contributing to the bonds' price change is known as:
a. Convexity
b. Accrued interest
c. Duration