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Determine the bond convexity

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Suppose the yield curve is flat at 4%, and you bought 100 4-year, 2% coupon bonds with faces of $1,000, exposing you to IR risk.

(a) What's the bond's convexity?

(b) What is the approximate price change if yield is 5%?

(c) Suppose you have 5 and 7-year zeros available. How would you hedge duration and convexity?

(d) What happens to the portfolio if yield goes to 5%?

Reference no: EM133067889

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