Question: A 2-year $100 par value bond with a continuously compounded yield of 3.5% and an annual coupon rate of 4% payable semi-annually. (1) Use duration

A 2-year $100 par value bond with a continuously compounded yield of 3.5% and an annual coupon rate of 4% payable semi-annually. (1) Use duration and convexity to estimate the effect of a 1.75% decrease in yields on the price of this bond. (2) How accurate is the estimate?

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