When the YTM changes, the actual price of the security is ______ the price (linearly) approximated only with duration.

1. Higher than
2. Lower than
3. Exactly equal to
4. Can be higher or lower than the predicted price, depending on other characteristics of the security.

Suppose two bonds have the same price and duration. If YTM changes, the price of the higher convexity bond will be ________ the price of the lower convexity bond.

Higher than

1. Lower than
2. Equal to
3. Higher, lower or equal to (depends on other characteristics)

Consider a bond which has a maturity of four years and pays a 3% coupon rate (with annual coupon payments). The bond sells at par value of $100.

^{Calculate the bond's convexity, answer with two decimal places.}

If YTM increases by 200 bps, calculate the new price of the bond predicted by using both duration and convexity.

^{answer with two decimal places.}