Financial Risk Manager Part 1

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Explanation:

Correct answer: D — 900 years^2

For a zero-coupon bond priced with continuous compounding:

P = Fe^{-rT}

Differentiate twice with respect to yield/rate $r$ :

P'(r) = -TP

P''(r) = T^2P

Therefore convexity is:

C = \frac{1}{P}P''(r) = \frac{1}{P}(T^2P) = T^2

For $T=30$ :

C = 30^2 = 900\text{ years}^2

So the answer is 900 years^2. In the continuous-compounding case, convexity for a zero-coupon bond depends only on maturity, not on the yield.

Explanation:

Correct answer: D — 900 years^2

For a zero-coupon bond priced with continuous compounding:

P = Fe^{-rT}

Differentiate twice with respect to yield/rate $r$ :

P'(r) = -TP

P''(r) = T^2P

Therefore convexity is:

C = \frac{1}{P}P''(r) = \frac{1}{P}(T^2P) = T^2

For $T=30$ :

C = 30^2 = 900\text{ years}^2

So the answer is 900 years^2. In the continuous-compounding case, convexity for a zero-coupon bond depends only on maturity, not on the yield.

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MManit

Last updated: April 18, 2026 at 11:32

30 years^2 (“years^2” refers to the units only)

797 years^2

816 years^2

900 years^2