hi tutor

how to do th is problem?

thank you :)

A $1000 par value bond pays annual coupons at a coupon rate of 7%. An investor purchases the bond with exactly four years to run, when the yield to maturity on the bond is 6%, and sells the bond when it has exactly three years to run. The market yield to maturity on the bond drops to 4% immediately the investor purchases the bond, and remains

at 4% a year later.

Calculate the new price of the bond, when it still has 4 years to run, but following the decrease in its yield to 4%. How accurate were your estimates of the new price,

i) based on the modified duration rule

ii) taking the convexity correction into account