Question

Find the convexity of a seven-year maturity, 6% coupon bond selling at a yield to maturity of 8%. The bond pays its coupons annually. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Answer 1

Answer:

convexity = 37.6306

Explanation:

given data:

maturity time = 7 years

yield to maturity (y) = 8% = 0.08

coupon bond = 6%

price= $89.59 ( gotten from the summation of pv(cf) from the table attached below )

t = time

convexity can be found using this formula

$= \frac{1}{p(1+y)^2} * summation of (t +t^2) * pv(cf)$

= $\frac{1}{89.59*(1.08)^2} * 3932.310$   = 37.6306