Question 2 Below is the information sheet for a plain vanilla bond Characteristic Value Par Value $1,000 Maturity 5 years Coupon rate 3 100 bps Compounding Annual Yield to maturity 3 100 bps A What is the price of the bond 3 marks B Calculate the modified duration and convexity of the bond 4 marks C What is the estimated price of the bond using modified duration and convexity for a 225 bps decrease in interest rates 3 marks

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Question: Question 2. Below is the information sheet for a plain vanilla bond. Characteristic Value Par Value $1,000 Maturity 5 years Coupon rate 3% + 100

Question 2. Below is the information sheet for a plain vanilla bond.

Characteristic	Value
Par Value	$1,000
Maturity	5 years
Coupon rate	3% + 100 bps
Compounding	Annual
Yield to maturity	3% + 100 bps

A. What is the price of the bond? [3 marks] B. Calculate the modified duration and convexity of the bond. [4 marks] C. What is the estimated price of the bond using modified duration and convexity for a 225 bps decrease in interest rates? [3 marks]

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