Q$.$ No$.2$

$10$ Marks

$($i$)$ For a bond if Modified Duration is $2\mathrm{.}57710$ and convexity is $9\mathrm{.}300186,$ for a $50$ basis point

increase or decrease $($yield shock$),$ what is the $\%$ change in bond price due to Modified duration

and $\%$ change in bond price due to convexity on both the direction. If the bond is currently

priced at Rs $1100,$ calculate the price of the bond effected on both direction due to the yield

shock of $50$ basis point change. $(5$ marks$)$

Can interest rates be negative? How does negative or low interest rates affect businesses? Can

you protect against interest rates?