For the following bond,
Par value: $1,000
Coupon rate: 8% paid annually
Time to maturity: 3 years
Interest rate: 3%
What is the convexity? Also, if the interest rate increases from 3% to 4%, what is the price change due to the convexity?
a. Convexity: 11.125; price change: $.6402
b. Convexity: 10.2961; price change: $.5876
c. Convexity:11.925; price change: $.8887
d. Convexity: 9.7806; price change: $.7087
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