Consider a 14 percent, $1,000 par bond maturing in two and a half years if the yield to maturity is 8 percent and interest is paid semiannually.

7.7 Calculate the convexity of the bond.

7.8 If the price before yields changed was $1,133.55, what is the resulting price taking into account both the effect of duration and convexity if yields decrease by 20 basis points?