Week 3 A bond has a Macaulay duration of 7. The yield is 7%. What is the modified duration? If the bond is priced at 100 and rates decrease 50 bps, what is the bond price? Walk me through the steps. Note: In making this calculation, we ignored "convexity". What is convexity and would convexity make the final price higher or lower than your answer above? *** A borrower comes to market with a 7% yield for a 10-year bond. The DV01 is 7 (0.0007). An investor comes in with a strong preference for a discount bond. The issuer finds that attractive. For technical reasons, the bond must have a price of at least 90%. So they agree to issue a bond at 90%. What would the coupon be? How did you calculate that? Explain the logic