1.You have a $1000 par value 3 year bond with a 5% annual coupon trading at a yield to maturity of 4%.The bonds convexity is 140.

a.Calculate the Modified Duration of the Bond

b.If the bonds yield to maturity falls to 3.5% immediately, what will be the new price of the bond?

c.Using the duration rule, what would you have predicted the bond price to do given the .5% drop in yield?

d.What about when you use the duration with convexity rule to predict the price movement of the bond?