Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 11 Excel Application: Convexity
1. Calculate the convexity of a “bullet” fixed income portfolio, that is, a
portfolio with a
single cash "ow. Suppose a single $1,000 cash "ow is paid in year 5.
[Change cells : 6 0; 8 5; 10 100; 15 0]B B D D= = = =
This adjusts removes any periodic payments prior to maturity and adjusts maturity to 5 years and
reflects the single payment of $1,000 (note that cash flows are inputted as percentages, so 100 is
appropriate rather than 1000).
Next, specify a YTM. Answers may vary here. Assume a YTM of .045:
[Change cells : 7 .045]B=
Convexity is 27.4719.
2. Now calculate the convexity of a “ladder” fixed income portfolio, that is, a
portfolio with
equal cash "ows over time. Suppose the security makes $100 cash "ows in
each of years
