A 3-year 10% semi-annual coupon-paying bond has just been issued and is trading at a yield of 6.5%p.a. The bond has a face value of $100.

a. calculate the current yield of the bond

b. Calculate the Macaulay duration of the bond

c. Assume the yield decreases to 6.2%p.a. Using your duration measure, what is the expected value of the bond?

d. Calculate the convexity of the bond at a yield of 6.5%p.a.

e. Assume the yield falls to 6.2%p.a. Using your duration and convexity measure, what is the expected value of the bond?

f. Calculate the actual value of the bond when the yield falls to 6.2%p.a.

g. Comment on and compare your answer to parts c,e, and f.