Exercise 4.3.1 In practice, convexity should be expressed in percentage terms, call it C%, for quick mental calculation. The percentage price change in percentage terms is then approximated by −D% ×r +C% ×(r )2/2 when the yield increases instantaneously by r%. For example, if D% = 10, C% = 1.5, and r = 2, the price will drop by 17% because

−D% ×r + 1 2

×C% ×(r )2 =−10×2+ 1 2

×1.5×22 =−17.

Show that C% equals convexity divided by 100.