A 12.75-year maturity zero-coupon bond selling at a yield to maturity of 8% (eective annual yield) has convexity of 150.3 and modied duration of 11.81 years. A 30-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical duration { 11.79 years{but considerably higher convexity of 231.2. Assume throughout that the face value is $1,000. For parts (a){(d) you should use discrete time results. Part (e) deals with continuous time.

(e) All of the above calculations are based on a discrete-time model. Suppose now that the yields (8% for zero-coupon bond and 6% for the 30 year coupon bond) are continuously compounded and that the maturity of the zero-coupon bond is 13 years. Using the denition explained in class, compute the duration and convexity of each bond.