D compute the convexity measure for bond a dont

.
d. Compute the convexity measure for Bond A. Don’t forget to report the convexity measure in
years. (2 points)

e. Calculate the actual price of the bond for a 100-basis-point increase in interest rates. (2
points)
12) Corp ABC issued a special bond. It is priced at $102, has a modified duration of 4, and convexity of
20.
a. Using duration, estimate the price of a special bond issued by ABC Corp for a 100-basis-
point increase in interest rates. (2 points)
.04
b. Using both duration and convexity measures, estimate the price of the bond for a
100-basis-point increase in interest rates. (2 points) c. Do you expect the answer from part a or part b to be closer to the actual price? Why?
(2 points)
Part b. Using the duration and convexity measures together is more accurate. The reason is that
adding the convexity measure to our estimate enables us to include the second derivative that
corrects for the convexity of the price-yield relationship.