Ap

R„ = — combining this equation with (21.4) we have ^ = + or AP = -DP(A,) + CT>(A*)

The plots were obtained with C equal to zero when calculating the approximation using duration alone, or its calculated value when calculating the approximation using duration plus convexity.

Yield

Figure 21.2 The relationship between yield and price for a callable bond.

call price for the bond in fear that the coiporation will call. Thus below the yield of 10% the price curve flattens out.6

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