There are two questions for a total of 100 points. You must support your answers with formulas or explanations. Unsupported answers will result in no credit. 1. (40 points) Suppose that a risk free project will generate the following cash flows: t=0 4 $400 $500 $500 $600 $600 The prices of risk free, zero coupon bonds with $1000 face value and different maturities are: Price $940 870 760 640 500 Maturity t 2 t 4 t- 5 Given these risk free bonds, what is the price Gi.e., discounted present value) of the project? 2. (60 points) Consider a bond with annual payments of $100, a principal payment of $1,000 in 10 years, and a cost of $1000. Assume a flat yield curve with a 10% yield-to-maturity and annual compounding. (a) (b) (c) What is the Duration of the bond? What is the Modified Duration of the bond? What is the Convexity of the bond