2. Answer the questions for the bond below, which pays interests semi-annually. The modified duration is 3.9944 years, and convexity measure is 19.7636 years. Par value is $1000.

Coupon rate: 9%, Current yield to maturity: 8%, Maturity: 5 years

(1) Calculate the actual price of the bond for a 50-basis-point decrease in yields (yield changes from 8% to 7.5%).

(2) Using duration, estimate the approximate price of the bond for a 50-basis-point decrease in yields (yield changes from 8% to 7.5%).

(3) Using both duration and convexity measure, estimate the approximate price of the bond for a 50-basis-point decrease in yields (yield changes from 8% to 7.5%).

(4) Compare your results in (2) and (3) and explain which is closer to the actual price in (1).