Consider the following portfolio of securities:
 

Security	Number of Units
4-yr fixed rate bond with a 4% annual coupon	1,000
2-yr floating rate bond (no spread) with an annual coupon. Assume we are sitting on a reset date	-500
4-yr zero coupon bond	1000

 

Number of units refers to the number of $100 face value bonds in the portfolio.  The -500 means that you are short 500 units of the floating rate bond.  Assume the the term structure is flat at 5% per year compounded continuously.  Find the convexity of the portfolio