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Consider a three - year option - free bond paying an 1 1 % percent annual coupon and selling at par value. Required: a )

Consider a three-year option-free bond paying an 11% percent annual coupon and selling at par value.
Required:
a) Calculate the duration of the bond.
b) If the yield to maturity is expected to change by 175 b.p. in either direction:
i. Using the duration rule, determine the price of the bond at the new yields.
ii. Assuming the convexity of the bond is 15, use the duration-with-convexity rule to determine the price for the bond at the new yield.
iii. Compare the results obtained in part i and ii. What observations do you make?
Show all workings. Round-off all final answers to two decimal places. You do not need to include or show the formulas used in your answer.
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