Calculate the price impact on a 10-year corporate bond with a 4.75% coupon priced at 100, with an instantaneous 50 bps widening in spread due to the issuer’s announcement that it was adding substantial debt to finance an acquisition (which resulted in a two-notch downgrade by the rating agencies).
▪ The bond has a modified duration of 7.9, and its convexity is 74.9.