Question: Consider a bond that has 1 year until maturity. The bond pays a coupon of 3% quarterly, has a face value of $10,000, and the

  1. Consider a bond that has 1 year until maturity. The bond pays a coupon of 3% quarterly, has a face value of $10,000, and the yield to maturity for similar bonds is 5%.

A.What are the duration, modified duration, and convexity of this bond?

B. If the yield to maturity were to shift downward by 0.25% (aka 25 basis points), what do duration by itself and both duration and convexity predict the price change will be?

I have wrote the answers below to Questions A and B. PLEASE WORK OUT STEP BY STEP AND SHOW WORK.

Answers to A

Dur = 0.9888

Mod Dur = 0.9766

Convex = 1.2011

Answers to B

Dur Only => $23.94

Dur and Convex => $23.98

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