1. a. Footnote 7 presents the formula for the convexity of a bond. Build a spreadsheet to calculate the convexity of a 5-year, 8% coupon bond making annual payments at the initial yield to maturity of 10%.
2. b.What is the convexity of a 5-year zero-coupon bond?
4. We pointed out in footnote 4 that Equation 16.3 for the modified duration can be written as dP/P = D*dy. Thus, D* = 1/P dP/dy is the slope of the price-yield curve expressed as a fraction of the bond price. Similarly, the convexity of a bond equals the second derivative (the rate of change of the slope) of the price-yield curve divided by bond price: Convexity = 1/P d2P/dy2. The formula for the convexity of a bond with a maturity of T years making annual coupon payments is
5. 

where CFt is the cash flow paid to the bondholder at date t; CFt represents either a coupon payment before maturity or final coupon plus par value at the maturity date.

Convexity 1 P x (1 + y)24 CF, | (1 + 2 +t)