1. What is the relationship between market interest rates,borrowers’ need for capital, expected inflation, securities’ risk and liquidity?
2. Assume a bond has an effective duration of 10.5 and a convexity of 97.3. Using both of these measures, what is the estimated percentage change in price for this bond, in response to an increase in yield of 125 basis points?
3. Suppose a 7% coupon bond maturing in 15 years is trading for 90 (90% of par). What is the yield to maturity on the bond?