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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 passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
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® 2024 Level I Curriculum, Volume 4, Module 12.