James Johnson bought a 3-year plain vanilla bond that has yield of 4.

Formula for annualized volatility:

Annualized volatility = Macaulay's duration * Rate volatility

Given:

Macaulay's duration = 2.94 years

Rate volatility = 20% of yield = 20% * 4.7% = 0.94%

Calculation:

Annualized volatility = 2.94 * 0.94% = 2.7636%

Convert to a percentage: 2.7636% ≈ 3.15%

ReferencesCalculation based on provided data and standard volatility formulas.