You are a credit analyst in the asset management department of a large bank or insurance company. The credit department is researching an investment in a syndicated loan to a large firm that used the funds to open a chain of karate dojos. The loan is an amortized loan with a 9% interest rate payable semi-annually. The original term was 10 years but the loan has been outstanding for 2 years so there are 8 years to maturity. Payments on the loan are up to date and the fourth payment has just been made so the next payment is due in 6 months. With syndicated loans, the redemptions are usually not randomly selected, but are paid down proportionately. The loan is currently trading at 87 on the remaining balance of the loan. For analytical purposes, assume the loan trades in $1000 increments.

With cash flows paid semi-annually, the Convexity of the loan is:

1. 10.1
2. 16.8
3. 19.0
4. 21.6
5. 27.4