If a bond has a convexity of 60 and a modified duration of, Financial Management

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If a bond has a convexity of 60 and a modified duration of

1. If a bond has a convexity of 60 and a modified duration of 10, the convexity adjustment a for a 25 basis point drop in interest rate is closest to

a. -0.0375 b. -1.0375% c. + 0.0325% d. +0.0375 e. -0.0325%

2. Suppose the spot rates are: 1-Year Rate: 4%, 2-Year Rate: 5.5%, 3-Year Rate 6%, 4-Year Rate: 6.5%, 5-Year Rate: 7%, 6-Year Rate: 9% and 7-Year Rate: 10.5% What is the one year rate five years from now?

a. 19.57% b. 18.62% c. 15.80% d. 14.65% e. 12.67%

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Financial Management: If a bond has a convexity of 60 and a modified duration of

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Financial Management: If a bond has a convexity of 60 and a modified duration of

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