Consider a 30-year 3% coupon bond with semi-annual coupon payments. Currently, the price of the bond is $337.47. Based on the current yield to maturity, the bond has a duration of 12.2 years and convexity of 233.2 year2. Calculate the following for this bond:

1. Yield-to-maturity (YTM).

2. Modified duration.

3. Using modified duration only, estimate the percentage change in bond price when YTM goes DOWN by 2%.

4. Using modified duration AND convexity, estimate the percentage change in bond price when YTM goes DOWN by 2%.

5. Now calculate the actual price of the bond with the YTM decreasing by 2%. What is the actual percentage change in bond value?

6. Now compare your answers in part c) and d): which method leads to a more accurate estimate on the bonds value change?