Answer the questions for the bond below, which pays interests semi-annually. The duration is 4 years and convexity measure is 20 years. (Assume par value is $1,000).

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

1. Calculate the price value of a basis point.

2. Calculate the actual price of the bond for a 50-basis-point decrease and a 50-basis-point increase in interest rates (8% to 7.5% and 8% to 8.5%), respectively.

3. Using duration, estimate the price of the bond for a 50-basis-point decrease in interest rate (8% to 7.5%).

4. Using duration, estimate the price of the bond for a 50-basis-point increase in interest rate (8% to 8.5%).

5. Using both duration and convexity measure, estimate the price of the bond for a 50-basis-point decrease in interest rates (8% to 7.5%).

6. Compare your results in (3) and (4) and explain which has a smaller error compared with the actual price in (2).

7. Compare your results in (3) and (5) and explain which is closer to the actual price in (2).