Question: (a) Consider a $1,000 face value 8.90% coupon bond with 3 years left to maturity that pays semi-annual interest. If the YTM or the market

(a) Consider a $1,000 face value 8.90% coupon bond with 3 years left to maturity that pays semi-annual interest. If the YTM or the market rate is 8%, find the following:

Macaulay Duration

Modified Duration

Approximate Modified/Effective Duration

Approximate Convexity

(b) If the Modified Duration of a bond is 7.87 and the approximate convexity is 321, what should be the approximate price drop for that bond in percentage for a 55bp increase in YTM? What should be the approximate price increase for that bond in percentage for a 55bp decrease in YTM?

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