Current yield-to-maturity, or a non-callable bond

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Question: Suppose you think that Treasury interest rates will increase 100 bps over the next year (in other words, a parallel shift up in the yield curve). Which would you rather invest in: (1) a callable bond with negative convexity at the current yield-to-maturity, or (2) a non-callable bond with positive convexity (assuming all other characteristics are the same)? Assume that both bonds currently have the same YTM, and explain your answer with a graph.

Reference no: EM133377571

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