Using excel, plot graphs of the modified duration and convexity versus the note (contract) rate c (for 1% ≤ c ≤ 20%) of a 30-year, fully amortizing, fixed-rate, par
mortgage. Annotate cells to show work. Assume that the mortgage never prepays/curtails, nor does it ever default.
2. Use the duration and convexity for c=5% in the previous question to plot the the percentage error in the percentage price change in the mortgage when yields change in
the range of -3% to +3%, using
a. Duration only, and
b. Duration and convexity together.
Assume par pricing today.

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2 Convexity is a measure of the cur... View the full answer