Assume a 2-year Euro-note, with a $100,000 face value, a coupon rate of 10% anda convexity of 4.53. If todays YTM is11.5% and term structure is flat. Couponfrequency and compounding frequency are assumed to be annual.

a.What is theMacaulay duration of this bond?

b.What is the exact price change in dollars if interest rates increase by 10 basispoints (a uniform shift)?

c.Use the duration model to calculate the approximate price change in dollars ifinterest rates decrease by 10 basis points.