Q-11.

C is correct. Under discrete compounding frequency (in this case, the compounding frequency is annual since we have assumed annual coupon payment), modified duration and modified convexity should be used to perform analysis. Based on the formula, we have:

ΔP ≈ –Mod. D × P × Δy + ½ Mod. C × P × (Δy)²

= –3.8653 × 94.3138 × 0.005 + ½ × 21.8945 × 94.3138 × 0.005²