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Determine the impact on the market value of the bond loan

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Reference no: EM132667230

Problem 1: Calculate the convexity for a three-year 5% coupon rate with a face value of $500,000 loan. What is the convexity of the same loan but with amortised payments?

Problem 2: Use this information to determine the impact on the market value of the bond loan and 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: EM132667230

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