To 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. Introduction: A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price. In simple terms, it is the average rate of return a holder can expect from that bond. Convexity is defined as a measure of the curvature in a relationship between bond yields and bond prices which shows how the time span of a bond changes with the change in interest rate.

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Chapter 11, Problem 23PS

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To 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.

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price. In simple terms, it is the average rate of return a holder can expect from that bond.

Convexity is defined as a measure of the curvature in a relationship between bond yields and bond prices which shows how the time span of a bond changes with the change in interest rate.

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