Consider the following bond (assume: credit risk free, no embedded options, pays interest semiannually):

Coupon 9%

YTM 8%

Term (yrs) 5

Par 100.00

Compute the following (a) [1pt] The price value of a basis point; (b) [4pts] The modified duration and convexity; (c) [1pt] Calculate the exact price change for a 100bp increase in the bond yield; (d) [1pts] Using duration only, estimate the price of the bond for a 100bp increase in yields; (e) [1pts] Using duration and convexity, estimate the price change of the bond for a 100bp increase in yields; (f) [2pts] Without an actual calculation, indicate (explain) whether the duration of the bond would be higher or lower if the YTM were 10%, rather than 8%. Hint: recall that the price-yield curve is convex for risk- and option-free bonds Also, think in terms of Macauley duration as a weighted time average.