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Basic Question 15 of 17

Callable bond prices at yields greater than the coupon rate exhibit ______.

A. negative convexity
B. positive convexity
C. negative concavity
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User Contributed Comments 5

User Comment
kalps It is only when yields fall does the price not change as expected becos of call option - i.e. price increase is surpressed by option
nchilds Yields are rising in this example
Rotigga Just remember the graph and questions like these will be easy.
cong Effective convexity can be negative. Modified convexity can't.
johntan1979 That's deep, cong :)
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Your review questions and global ranking system were so helpful.
Lina

Lina

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.