Question: Consider a bond that has 5 years until maturity. The bond pays a coupon of 3% semi-annually , has a face value of $10,000, and

Consider a bond that has 5 years until maturity. The bond pays a coupon of 3% semi-annually, 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 written the answers below, PLEASE SHOW STEP BY STEP HOW THE ANSWERS WHERE FOUND.

ANSWERS TO A

Dur = 4.6616

Mod Dur = 4.5479

Convex = 23.8323

ANSWERS TO B

Dur Only => $103.75

Dur and Convex => $104.43

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