- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 12. Yield-Based Bond Convexity and Portfolio Properties
- Subject 1. Bond Convexity and Convexity Adjustment
CFA Practice Question
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
Correct Answer: A
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 |