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You are an investm-t consultant working for a superannuation firm. One of the xed-income portfolio managers wants to understand more about managing interest rate risk in the portfolio, and she is particularly interested in understanding the concept of duration. The portfolio currently contains option free lag but the manager is considering adding bonds with embedded options into the portfolio. The manager is also considering purchasing a three-year 8% annual coupon paying bond. A. Using the par rates for annual coupon sovereign debt in the table below and bootstrapping method to obtain the zenmtg curve. [5 marks] El B. What is the value of the option free bond that is being considered for purchase? [3 marks] C. Establish the maximum Macaulay dura1ion of an option-ee fixed-rate bond with 3 years remaining until maturity? Carefully explain your answer. [3 marks] D. Duration provist a good approximation of changes in the price of an option-free bond, when the change in yield is relatively small. However, for large changes in yield a convexity adjustment needs to be incorporated. With the aid of your own fully annotated diagram, discuss the statem-t above and address why a convexity adjustment is necessary. [6 marks] E. Rank the following bonds by their price volatility if interest rates increase by 1%. Where rank = 1 is highest volatility. Please also explain your answer. [5 marks]