a bond is currently trading for 98.722 per 100 of par value. if the bond's yield-to-matu- rity (YtM) rises by 10 basis points, the bond's full price is expected to fall to 98.669. if The bond's YtM decreases by 10 basis points, the bond's full price is expected to increase To 98.782. The bond's approximate convexity is closest to:
A) 0.071.
B) 70.906.
C) 1,144.628.

Question

Quizplus · Accepted Answer

The approximate convexity of a bond can be calculated using the formula: Convexity ≈ [(P- + P+ - 2P0) / (2 * P0 * Δy^2)], where P- is the price if the yield decreases, P+ is the price if the yield increases, P0 is the original price, and Δy is the change in yield in decimal form. Given P- = 98.782, P+ = 98.669, P0 = 98.722, and Δy = 0.001 (10 basis points = 0.1% = 0.001), substituting these values into the formula gives a convexity close to 70.906.

A Bond Is Currently Trading for 98