A bond has a convexity of 25.72. What is the approximate percentage price change of the bond due to convexity if rates rise by 150 basis points? A. 0.58%. B. 0.71%. C. 0.26%.
The convexity effect, or the percentage price change due to convexity, formula is: 1/2×convexity × (Δy)2. The percentage price change due to convexity is then: 1/2×(25.72)(0.015)2 = 0.0026.
