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    Bond Convexity - Basics

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    api-3763138
    This document provides information and calculations to determine the convexity of a bond. It gives the inputs of an annual coupon rate of 5%, yield to maturity of 9%, biannual payments, and 8 periods to maturity. It then shows the cash flows and calculates the convexity as 16.23 using both the cash flows and the convexity formula.

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    Bond Convexity - Basics

    Uploaded by

    api-3763138
    43 views2 pages
    This document provides information and calculations to determine the convexity of a bond. It gives the inputs of an annual coupon rate of 5%, yield to maturity of 9%, biannual payments, and 8 periods to maturity. It then shows the cash flows and calculates the convexity as 16.23 using both the cash flows and the convexity formula.

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    This document provides information and calculations to determine the convexity of a bond. It gives the inputs of an annual coupon rate of 5%, yield to maturity of 9%, biannual payments, and 8 periods to maturity. It then shows the cash flows and calculates the convexity as 16.23 using both the cash flows and the convexity formula.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    43 views2 pages

    Bond Convexity - Basics

    Uploaded by

    api-3763138
    This document provides information and calculations to determine the convexity of a bond. It gives the inputs of an annual coupon rate of 5%, yield to maturity of 9%, biannual payments, and 8 periods to maturity. It then shows the cash flows and calculates the convexity as 16.23 using both the cash flows and the convexity formula.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 2

    BOND CONVEXITY Basics Annual Percentage Rate

    Inputs
    Rate Convention: 1 = EAR, 0 = APR 0
    Annual Coupon Rate (CR) 5.0%
    Yield to Maturity (Annualized) (y) 9.0%
    Number of Payments / Year (NOP) 2
    Number of Periods to Maturity (T) 8
    Face Value (FV) $1,000

    Outputs
    Discount Rate / Period (RATE) 4.5%
    Coupon Payment (PMT) $25

    Calculate Bond Convexity using the Cash Flows


    Period 0 1 2 3 4 5 6 7
    Time (Years) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
    Cash Flows $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
    Present Value of Cash Flow $23.92 $22.89 $21.91 $20.96 $20.06 $19.20 $18.37
    Weight 2.8% 2.6% 2.5% 2.4% 2.3% 2.2% 2.1%
    Weight * (Time^2+Time) 0.02 0.05 0.09 0.14 0.20 0.27 0.33
    Convexity 16.23

    Calculate Bond Convexity using the Formula


    Convexity 16.23
    8
    4.0 Total
    $1,025.00
    $720.76 $868.08
    83.0% 100.0%
    16.61 17.72

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