Question 320 points Freedom Truckers International has $25 million of risk-free debt outstanding. This debt has an annual coupon rate of 8% and matures in 2 years. Coupons are paid once per year. The current term structure is flat at 4% per year, compounded annually. a. What is the current market value of the firm's debt? (2 points) b. What is the duration of the firm's debt? (4 points) C. Suppose yields rise by 200 basis points (from 4% to 6%). Calculate the modified duration and use it to approximate the new market value of the firm's debt. (4 points) d. Suppose yields rise by 200 basis points (from 4% to 6%). Calculate the convexity and use it to approximate the new market value of the firm's debt. (4 points) e. You believe yields are going to fall in the near future. Should you increase or decrease the convexity of your bond portfolio? How does your answer change if you believe yields are going to rise instead? Explain why. Be BRIEF. (6 points) Question 320 points Freedom Truckers International has $25 million of risk-free debt outstanding. This debt has an annual coupon rate of 8% and matures in 2 years. Coupons are paid once per year. The current term structure is flat at 4% per year, compounded annually. a. What is the current market value of the firm's debt? (2 points) b. What is the duration of the firm's debt? (4 points) C. Suppose yields rise by 200 basis points (from 4% to 6%). Calculate the modified duration and use it to approximate the new market value of the firm's debt. (4 points) d. Suppose yields rise by 200 basis points (from 4% to 6%). Calculate the convexity and use it to approximate the new market value of the firm's debt. (4 points) e. You believe yields are going to fall in the near future. Should you increase or decrease the convexity of your bond portfolio? How does your answer change if you believe yields are going to rise instead? Explain why. Be BRIEF. (6 points)