Question 1, 2, and 3

1. What is the duration of a bond? Explain how the bond characteristics influence the size of a bond's duration? 2. What is the convexity of a bond? Explain how the bond characteristics influence the size of a bond's convexity? 3. With the aid of a diagram show why: (i) for a small change in interest rates using the modified duration (MD) approximation produces a reasonable approximation of the percentage change in a bond's price, (ii) for a large change in interest rates the MD approximation is relatively poor