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Basic Question 9 of 17
Consider a 10%, 12-year bond selling for 115.25, with a duration of 7.49 and a convexity of 24.75. The duration and convexity adjustments to the price for a +75 basis point shock and a -75 basis point shock, respectively, would be closest to ______.
B. 5.757; -5.757
C. -5.5479; 5.6871
A. -5.478; 5.757
B. 5.757; -5.757
C. -5.5479; 5.6871
User Contributed Comments 8
| User | Comment |
|---|---|
| sam95 | why are they using duration, if they already have estimated convexity? |
| sam95 | I got it, I was missing a part in the answer. |
| erinelize | Couldn't we just assume for this particular question that a positive shock will cause a negative adjustment to the price and vice versa, therefor leaving A as the only viable answer? |
| hardig | good catch erinelize - just noticed that as well. |
| johntan1979 | That's a wrong assumption, you two. There's negative changes in answers B and C too. |
| johntan1979 | Oh craps, sorry, I just realized the question did state "respectively", so yeah, great catch! |
| ldfrench | These formulas are like a foreign language. Not going to be able to remember them on the exam so no point in learning them. |
| Kevdharr | Remember them as best you can. Review them right before the exam starts. As soon as you can, do a brain dump and jot them down. That's what some of my co-workers have recommended doing. That way, you won't run the risk of forgetting them throughout the course of the exam. |
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.