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Basic Question 0 of 10
Callable bonds exhibit negative convexity at low yields because:
B. the coupon rate is higher than the yield, and the call as an option becomes valuable to the issuer.
C. callable bonds cannot exhibit positive convexity.
D. the bondholder will always receive the call price at maturity no matter what the yield is.
A. the coupon rate is lower than the yield, and the market price is controlled by the call price.
B. the coupon rate is higher than the yield, and the call as an option becomes valuable to the issuer.
C. callable bonds cannot exhibit positive convexity.
D. the bondholder will always receive the call price at maturity no matter what the yield is.
User Contributed Comments 1
| User | Comment |
|---|---|
| kalps | and therefore price increase will be capped in terms of it can only increase to a certain amount until the option is exercised by the issuer |
You have a wonderful website and definitely should take some credit for your members' outstanding grades.
Colin Sampaleanu
Learning Outcome Statements
explain why effective duration and effective convexity are the most appropriate measures of interest rate risk for bonds with embedded options
calculate the percentage price change of a bond for a specified change in benchmark yield, given the bond's effective duration and convexity
CFA® 2025 Level I Curriculum, Volume 4, Module 13.