1. Calculate and interpret the Macaulay and modified durations of a

a) 3-year 10% semi-annual bond (Bond C) when the required yield is 10%, and a

b) 3-year zero-coupon bond (Bond D) when the required yield is 10%

2. Suppose you have a two-security portfolio containing bonds A and B. The book value of bond A is $20 and the market value is $35. The book value of bond B is $40 and the market value is $50. The modified duration of bond A is 4.7 and the modified duration of bond B is 5.9. What is the modified duration of the portfolio?

3. A bonds duration is 4.5 and its convexity is 87.2. If interest rates rise 100 basis points, what is the bonds approximate percentage price change (due to both duration and convexity)?