1. A 10-year US treasury bond, issued on 1/14/2022, will expire on 1/14/2032. As of 7/1/2022, prior to the first coupon being paid, this bond is yielding 2.88% and is trading at a clean (or flat) price of 95.001. What is the coupon of this bond? Assume semi-annual coupon payments are made to the bondholder.

2. Compute the effective duration of this bond.

3. Suppose the benchmark 10-year bond yield spikes to 4.88% on 7/2/2022 (this is the benchmark yield, assume the change was +2.00% one day after the day discussed in the previous question). Estimate the change in value of the bond based on your effective duration calculation. Show your work.

4. Calculate the convexity of the bond.

5. Suppose the benchmark 10-year bond yield spikes to 4.88% on 7/2/2022 (this is the benchmark yield, assume the change was +2.00% one day after the day discussed in the previous question). Estimate the change in value of the bond based on your duration and convexity calculations. Show your work.

6. Use the bond-pricing formula to compute the new clean price of the bond on 7/2/2022. How does the price generated in closed-form (i.e. using the formula) compare to your estimates in problems 3 and 5?

7. Estimate the dirty price of the bond on 7/2/2022.

8. Why is the dirty price different than the clean price?

9. Is the dirty price ever the same as the clean price?

10. The iShares 7-10 Year Treasury Bond ETF (IEF) seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities between seven and ten years2. Compare and contrast two alternatives: a) purchasing the bond we have been analysing versus b) buying the ETF? In other words, how is the former more or less desirable than the latter? Assume equal amounts of capital are allocated to both strategies.