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QUESTION 2 (16 marks) a. A newly issued 10-year bond with a 10,000 face amount pays semi-annual coupons at a 7% annual rate. If the

QUESTION 2 (16 marks) a. A newly issued 10-year bond with a 10,000 face amount pays semi-annual coupons at a 7% annual rate. If the bond is being sold for 10,500, what is its modified duration? b. What is duration? 2 c. What are the benefits and limitations of duration? 3 d. What is convexity? [2] e. How is convexity useful for bond portfolio management? 3

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