An 8% coupon bond with 15 years to maturity has a yield (YTM) of 10% today and a macauley duration of 8.45 years. If the bond yield increases by 25 basis points this afternoon, the bond price will approximentally:

- Increase by 4%

- Decrease by 4%

- Increase by 2%

- Decrease by 2%

- Decrease by 16%

1B) Suppose the yield increase is 100 basis points instead of 25. Calculate the actual return on the bond and by doing so, quantify the benefit for this bonds owner of the positive convexity effect.

- 11.72 basis points

- 45.18 basis points

- 0.67 basis points

- 2.93 basis points

- 20.12 basis points