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What is the usefulness of convexity

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Reference no: EM133133786

Question - Calculate the convexity for a three-year 3.5% coupon rate with a face value of $500,000 loan with amortised payments?

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.

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: EM133133786

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