1. An asset will provide 2 cash inflows: $10,000 in year 2 and $20,000 in year 10 . The asset is currently priced at 6% effective. a. What is the price of the asset? b. What is the ModD of the asset? [1] c. What is the convexity of the asset? [1] d. Estimate the price if the interest rate changes to 6.1% using only ModD [2] e. Estimate the price if the interest rate changes to 6.1% using both ModD and convexity [2] f. Determine the exact price at I=6.1% [1] g. Which estimate in d. or e. Is better in this particular case? And Why? [2] 2. A 4-year bond is bought at a premium. Assuming that market yields remain stable after purchase, sketch a graph showing the changes in the price of the bond with time, including the changes in price between coupon dates. Label the axes to explain the shape of the graph. [5] 3. You buy a 15 year bond at par with Face Value equal to its redemption value of $1,000. If the bond pays annual coupon of 7%, a. What is the book value at the end of the 7th year? [2] b. What percentage of the coupon is the interest portion in the 11th year. [3]