2) Assume that the yield curve for zero-coupon bonds as a function of maturity T is: y(T) = 0.01 + .002 T
Consider a 10-year, 4% coupon bond (paid annually) with face value = $100. Calculate:
2A) The present value of the bond
2B) Its Macaulay duration
2C) Its modified duration
2D) Its convexity
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