Exercise

Convexity adjustment

Finding the convexity adjustment of a bond is the next step in using both duration and convexity to predict changes in bond prices. In this exercise, you are going to calculate the convexity adjustment for a 10 year zero coupon bond with a yield of 5% and face value of USD 100.

Recall that the formula for the convexity adjustment is given by:

\( Convexity \ Adjustment = 0.5 \times \ Dollar \ Convexity \times 100^2 \times (\Delta y)^2\)

numpy_financial has already been imported for you as npf.

Instructions

100 XP

Find the convexity adjustment for a 10 year zero coupon bond and print the result.