Q1. Under a flat interest rate term structure, a 4-year bond with face value $1,000 and annual coupon rate of 5% (paid at the end of each year) is currently priced at par. Use the 1^st order modified approximation to estimate the bond price when the yield curve experiences a parallel shift up by 0.5% (i.e. from i to i+0.5%).

Q2. Under a flat interest rate term structure, the 3-year deferred, 1-year forward annual effective interest rate is 5%. Calculate the Macaulay convexity for a 3-year annuity immediate whose first annual payment is $700 and each subsequent payment is 5% higher than the previous payment.