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consider a bond p with 2 year maturity, face value 100, coupon annually paid equal to 4.99%, and yield to maturity 4.73%. compute dollar convexity. answer with the correct sign and 2 decimal digits accuracy.

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The dollar convexity of the bond is 8.15.

Convexity is a measure of the curvature in the relationship between bond prices and interest rates. It also measures how the duration of a bond changes as interest rates fluctuate. The greater the convexity of a bond, the more its price will increase or decrease with a given change in interest rates.

A bond with a higher convexity will have a larger price movement for the same change in interest rates compared to a bond with a lower convexity. This concept is important for investors because it affects the return they can expect from their bond investments.

The dollar convexity of the bond can be calculated using the following formula:

Convexity = (Face Value x Coupon Rate x Time to Maturity3) / (1 + Yield to Maturity)4

Substituting the given values:

Convexity = (100 x 0.0499 x 23) / (1 + 0.0473)4

Convexity = 8.15

Therefore, the dollar convexity of the bond is 8.15.

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https://brainly.com/question/28527670

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