Question: QUESTION 2 Assume the yield curve is flat at 6.5% pa nominal. A cash and $duration-neutral butterfly is to be constructed by selling one thousand

QUESTION 2 Assume the yield curve is flat at 6.5% pa nominal. A cash and $duration-neutral butterfly is to be constructed by selling one thousand 7-year zero coupon bonds and purchasing q_s and q_l zero coupon bonds with maturities 4 and 14 years respectively. We assume that interest accrues semi-annually. We also assume each bond has a face value of $100.

(e) What is the modified duration of the 7-year bond? [ Select ] ["6.573", "13.559", "7.000", "6.780", "None of the other answers is correct"]

(f) What is the modified duration of the 14-year bond? [ Select ] ["None of the other answers is correct", "13.559", "13.146", "27.119", "14.000"]

(g) What is the standardized convexity of the 4-year bond? [ Select ] ["77.425", "17.633", "None of the other answers is correct", "16.885", "67.539"]

(h) What is the standardized convexity of the 7-year bond? [ Select ] ["49.247", "None of the other answers is correct", "196.988", "49.373", "63.906"]

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