Consider a 3-year bond that makes semi-annual coupon payments. The annual coupon rate is 10%, the face value is $1,000 and the interest rate is 8% per year.

a. What is the duration of this bond?

b. By how many percents exactly will the price increase if the yield on the bond drops to 7%?

c. Calculate the convexity (Hint - you don't have to use the convexity formula).