A bond which has just been issued possess the below features :

Coupon	Yield-to-Maturity (YTM)	Expiry	Macaulay Duration
4%	4%	7 years	5 years

Required:

1. Determine the modified duration based upon the above data.

2. Modified duration is a better way to determine the bonds sensitivity to interest rate changes as compared to the expiry period of the bond. Do you agree with this statement ? Justify your stance by providing proper explanations.

3. Determine the changes direction in modified duration under the following situations :

1. The bonds coupon was 2%
2. The bonds expiry was 3 years

4. Provide the definition of convexity and discuss how modified duration and convexity are used to determine dP/dI (P : Bond price, I: Interest rate).