An Asset will provide cash inflows of $8,000 in 4 years and $20,000 in 10 years. The assert is currently priced at 5% annual effective.
a. What is the modified duration of the asset?
b. What is the convexity of the asset?
c. Estimate the price of the asset using the approximation that uses both modified duration and convexity, if the interest rate changes slightly to 4.9% annual effective.