1. A 25-year, 5% coupon bond, pays interest semi-annually, and is priced to yield 5%.

a. What is its approximate modified duration for 100bps change in yield?

b. What is its approximate convexity for 100bps change in yield?

c. Using its approximate modified duration alone, how much (in % terms) do you expect the price of this bond to change if interest rates increase by 200bps?

d. Using its modified duration and convexity, how much (in % terms) do you expect the price of this bond to change if interest rates increase by 200bps?

e. Compare the actual expected change in the value of the bond if yields across the yield curve increased by 200bps for this issuer vs. the answer obtained in part d above.