A newly issued bond has a maturity of 10 years and pays a 8.6% coupon rate (with coupon payments coming once annually). The bond sells at par value. a. What are the convexity and the duration of the bond? Use the formula for convexity in footnote 7. (Round your answers to 3 decimal places.)

HW Ch 15 Saved Help Save & Exit Submit Check my work 7 Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000. Maturity (Years) 10 points Price $ 960.66 870.89 803.92 738.80 680.72 5 Skipped eBook a. Suppose that you buy today one 3-year maturity zero-coupon bond. How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero? (Round your answer to 4 decimal places.) Print References 5-year maturity zeros b. What are the cash flows on this strategy in each year? (Negative value should be indicated by a minus sign. Leave cell blank if there is no effect. Round your answers to 2 decimal places.) Cash Flow Time 0 3 5 c. What price would be predicted by the modified duration rule $P = -D * Ay? What is the percentage error of that rule? (Negative answers should be indicated by a minus sign. Round your answers to 2 decimal places.) % Percentage price change Percentage error es d. What price would be predicted by the modified duration-with-convexity rule 4P = -D* Ay + x Convexity