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4. A newly issued bond has a maturity of 10 years and pays a 5.5% coupon rate (with coupon payments coming once annually). The bond
4. A newly issued bond has a maturity of 10 years and pays a 5.5% coupon rate (with coupon payments coming once annually). The bond sells at par value ($ 1,000). a. What are the convexity and the duration of the bond? (30 marks) b. Suppose the bond's yield to maturity immediately increases from 5.5% to 6.5% (with maturity still 10 years). What is the price predicted when duration and convexity are taken into account (20 marks) c. Interest rate risk is a major concern for bond investors. The best way to reduce this is to hold securities with short times to maturity (50 marks)
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