This question has three independent parts, (a), (b), and (c).

(a) Using a binomial tree, you have valued a fixed income security at $975,000. Also, shifting the entire binomial tree up by 10 basis points, the bond price drops to $974,500; shifting the whole binomial tree down by 10 basis points, the price of the bond rises to $976,000. Calculate the effective duration and effective convexity of the bond. Finally, using the effective duration and convexity just calculated, what is the approximate percentage change in bond price when there is an 80 basis point parallel increase in the yield curve? (5 marks)