A bond for the Chelle Corporation has the following characteristics:

Par value - $1,000

Maturity - 12 years

Coupon - 10% annual coupon

Yield to maturity - 9.50%

Macaulay duration - 5.7 years

Convexity - 48

Assuming its yield to maturity declined by 200 basis points.

1. What is the actual percentage capital gain?

a. 15.31%

b. 13.56%

c. 10.78%

d. 14.24%

e. 12.92%

2., What price would be predicted by the modified duration rule?

a. $1,120.23

b. $1,082.75

c. $1,039.83

d. $1,178.96

e. $1,142.66

3. Calculate the price change ($) attributable to the convexity effect.

a. $23.41

b. $12.34

c. $5.46

d. $14.78

e. $9.94