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Basic Question 2 of 17
What is the convexity of a 10%, semi-annual coupon, 12-year bond selling for 115.25 if there is a 15-basis point shock?
B. 24.75
C. 36.44
A. 49.5
B. 24.75
C. 36.44
User Contributed Comments 14
| User | Comment |
|---|---|
| kalps | how do you get this anyone ? |
| Gina | Calculate YTM for P0: PV=-115.25; N=24; PMT=5; FV=100 -> I/Y=3.9998 ->YTM=8% YTM(-15bp)=7.85 -> I/Y=3.925... ->PV(-)=116.5171 YTM(+15bp)=8.15 -> I/Y=4.075... ->PV(+)=113.9958 116.5171+113.9958-2(115.25)/((115.25)(.0015)^2) =0.0129/0.00025 =49.74 (which is as close as I get to nr A) |
| stefdunk | don't round the numbers. I tried 114.00 and 116.52, and got 76 (and change) |
| mtcfa | The convexity MEASURE is different from the convexity ADJUSTMENT. |
| rishtap | Should I assume every bond has a semiannual pay in the exam, or will the question be more specific? |
| raymondg | Yes bonds are always to be worked semi annual |
| jmelville | You need to round the original YTM from 7.999639 to 8.00% (i.e. down to whole basis points), however when it comes to the I/Ys you need to leave them at 3.925 and 4.075 (i.e. 3 decimal places - basis point rounding only applys to the YTMs). |
| johntan1979 | Rounding the YTM is not really the big issue here (0.000361% difference). It is rounding the V- and V+ that makes a lot of difference, just like what stefdunk said. Don't round! Practice using the STO and RCL functions. |
| gill15 | I still cant get over this section ---- We're this far into bonds and somebody is asking if every bond has semi annual payments... people must be WAY too tired of CFA now that we're in Session 16 |
| CHUCKYT | The formula in the notes and the CFA text does not multiply the initial PV by 2 in the denominator for the convexity formula. According to the CFA text the solution here should by aprox. 49.50 |
| nfressell2 | Rounding the ytm certainly makes the difference |
| ascruggs92 | Assume semi-annual pay unless stated otherwise. This question happens to specify for you rishtap, so no assuming is necessary. |
| ashish100 | WILL SOMEONE PLEASE EXPLAIN STO AND RCL FUNCTIONS?!! Thanks! :) |
| ashish100 | i got it. if you want to store lets the number 100. you can store in ten places in keys 0 - 9. Example Press 100 STO 1 to store. Then RCL 1 to recall. It will bring up the number you stored. |
I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt
Learning Outcome Statements
calculate and interpret convexity and describe the convexity adjustment
calculate the percentage price change of a bond for a specified change in yield, given the bond's duration and convexity
CFA® 2025 Level I Curriculum, Volume 4, Module 12.