Assume that all bonds pay annual coupons and have par values of $1,000 unless otherwise stated.

6. An eight-year, 4.0% bond has a YTM of 4.8%, a duration of 6.97 and convexity of 59.78. 8 pts a. Compute the percentage change in the bond's price if its YTM rises to 5.4%. b. Estimate the percentage change in the bond's price using modified duration (the duration rule) if its YTM rises to 5.4% c. Estimate the percentage change in the bond's price using modified duration and the convexity correction (the duration \& convexity rule) if its YTM rises to 5.4%. If it increases to 4.9%. d. Estimate the percentage change in the bond's price using the duration rule if its YTM falls to 4.4%. e. Estimate the percentage change in the bond's price using the duration \& convexity rule if its YTM falls to 4.4%. 6. An eight-year, 4.0% bond has a YTM of 4.8%, a duration of 6.97 and convexity of 59.78. 8 pts a. Compute the percentage change in the bond's price if its YTM rises to 5.4%. b. Estimate the percentage change in the bond's price using modified duration (the duration rule) if its YTM rises to 5.4% c. Estimate the percentage change in the bond's price using modified duration and the convexity correction (the duration \& convexity rule) if its YTM rises to 5.4%. If it increases to 4.9%. d. Estimate the percentage change in the bond's price using the duration rule if its YTM falls to 4.4%. e. Estimate the percentage change in the bond's price using the duration \& convexity rule if its YTM falls to 4.4%