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Using the curvature of the price/yield line

In addition to using the steepness of the price/yield line to estimate the duration of a bond, you can also use its curvature to estimate the convexity of a bond.

In this exercise, you are going to plot a price/yield graph of two bonds in order to see which bond has the greatest convexity. Both bonds will pay a 5% annual coupon, have a 5% yield and a face value of USD 100, but the first bond will be a 5 year bond, and the second a 20 year bond.

numpy, numpy_financial, pandas, and matplotlib have already been imported for you as np, npf, pd, and plt, respectively.

This exercise is part of the course

Bond Valuation and Analysis in Python

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Hands-on interactive exercise

Have a go at this exercise by completing this sample code.

# Create array of yields and convert to pandas DataFrame
bond_yields = ____
bond = ____(____, ____)
Edit and Run Code