Q.1 Valuation and risk of bonds (30pts)

a) Define and explain the traditional method of calculating Duration (duration). Demonstrate your formulas.

b) Is Duration used to assess the risk of an obligation? Explain.

c) Define and explain the calculation of the convexity of a bond using an example of your choice.

d) Can convexity be used to assess the risk of a bond? Explain

e) Can duration and convexity be used for hedging? If yes, define and

explain with an example of your choice.