ishfaque

Is this the whole question? I am assuming when they say duration, they mean modified duration. Since the spread narrows, the spread adjustment is negative.
Return Impact = -(Duration x Spread) + 0.5 x Convexity x Spread^2 = -(6.4 x -0.0075) + 0.5 x 50.0 x -0.0075^2 = 0.0494 or +4.94%.
Spread narrows  interest rates decrease  price goes up.
What is Schweser’s explanation for the answer?