Express the convexity relationship between zeros and coupon

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Estimate the convexity for each of the following three bonds, all of which trade at a yield to maturity of 8 percent and have face values of $1,000.

A 7-year, zero-coupon bond.

A 7-year, 10percent annual coupon bond.

A 10-year, 10 percent annual coupon bond that has a duration value of 6.994 years (i.e., approximately 7 years).

Rank the bonds in terms of convexity, and express the convexity relationship between zeros and coupon bonds in terms of maturity and duration equivalencies.

Reference no: EM13317572

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