A 4-year 12% coupon bond has a yield of 10%.
(a) What are its Macaulay Duration, Modified duration, and convexity (I do not mean effective convexity)
(b) What is the actual price change, Modified Duration predicted price change and Modified Duration + convexity predicted change in price for an increase of 50 basis point in the yield.
Assume a flat term structure before and after the increase and annual coupons. (Note: For convexity do not use effective convexity measure)

Answer rating: 100% (QA)

Part a Macaulay Duration Modified Duration and Convexity a1 Macaulay Duration We can use the formula ... View the full answer