Use the Following Discount Factors When Needed

question 11

Essay

Use the following discount factors when needed.
-Calculate the convexity of the following portfolio:
i. 1 unit of a 2-year ?xed coupon bond paying 10% coupon quarterly.
ii. 1 unit of a 2-year ?xed coupon bond paying 1% coupon semiannually.
iii. 1 unit of a 2-year zero coupon bond.

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Definitions:

Normal Curve

The normal curve, or the bell curve, represents the graphical depiction of a normal distribution with a symmetric shape where most outcomes cluster around the mean.

Standard Deviation

A measurement indicating the range of separation or variance among a set of data.

Mean

The arithmetic average of a set of numbers, calculated by adding all the numbers and dividing by the count.

Standard Normal Curve

A bell-shaped curve that is symmetric about the mean, showing the distribution of a standard normal variable where the mean is zero and the standard deviation is one.