Calculate the convexity (measured in six-monthly periods)for a coupon-paying bond maturing in two years,where the bond has a face value of $100 000,yield of 5% p.a.and coupon rate of 7% p.a.Assume interest rates are paid half yearly and the last coupon payment has just been made.

A) $ 1.85 $
B) $ 3.66 $
C) $ 9.35 $
D) $ 10.26 $

Question

Calculate the convexity (measured in six-monthly periods) for a coupon-paying bond maturing in two years,where the bond has a face value of $100 000,yield of 5% p.a.and coupon rate of 7% p.a.Assume interest rates are paid half yearly and the last coupon payment has just been made.

A) $ 1.85 $
B) $ 3.66 $
C) $ 9.35 $
D) $ 10.26 $

Quizplus · Accepted Answer

Using equation 6.11,we can find the convexity of the bond.The bond will have periodic cash flows of $3500 for three periods,the last cash flow being $103 500 in period four.The weights of the PV of these cash flows are 0.0329,0.0321,0.0313 and 0.904.Multiplying each by t (t + 1)periods and then halving the obtained value gives a convexity of 9.35.

Calculate the Convexity (Measured in Six-Monthly Periods)for a Coupon-Paying Bond 1.85 1.85 1.85

Calculate the Convexity (Measured in Six-Monthly Periods)for a Coupon-Paying Bond $1.85$