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Basic Question 11 of 17
The presence of embedded options may cause the effective convexity to be ______ while the modified duration will always be ______.
B. positive; zero
C. negative; zero
A. negative; positive
B. positive; zero
C. negative; zero
User Contributed Comments 5
| User | Comment |
|---|---|
| ragingrazz | This depends on the product type and the level of rates... |
| uberstyle | how so? A is true for as stated, no? |
| steved333 | A is true as stated. |
| Kevdharr | Because modified duration doesn't take into account the cost of the embedded option?? |
| CFAJ | Yeah that's why modified duration will always be positive whereas effective takes options into account |
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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.