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What is the usefulness of convexity

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Problem 1: Calculate the convexity for a three-year 4.5% coupon rate with a face value of $500,000 loan with amortised payments?

Problem 2: Use this information to determine the impact on the market value of the amortised loan if the entire yield curve shifted downward 50-basis points.

Problem 3: What is the usefulness of convexity when duration is available as a measure of interest rate risk? What is the practical implication for the three-year loan in this example?

Reference no: EM132941084

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