Finally, Winter asks you to analyze the interest rate risk in a 5-year and a 20-year bond. Winter requests that the analysis be based on level, slope, and curvature as term structure factors. You present her with Exhibit 1.

Winter then asks you to perform a few calculations using Exhibit 1.

2: Calculate the expected change in yield on the five-year bond resulting from a one standard deviation decrease in the level factor and one standard deviation decreases in the curvature factor

Based on Exhibit 1, the results of Analysis 2 should show the yield on the five-year bond:

A) decreasing by .0389%

B) Increasing by .0389%

C) Decreasing by .8315%