CFA Practice Question

There are 266 practice questions for this study session.

CFA Practice Question

Which statement is FALSE regarding the convexity adjustment of a traditional (option-free) fixed-rate bond?
A. For an increase in the yield, the convexity adjustment is a positive amount; it always brings the adjusted estimate closer to the actual price.
B. For a decrease in the yield, the convexity adjustment is a positive amount; it always brings the adjusted estimate closer to the actual price.
C. The convexity adjustment may push the adjusted estimate farther away from the actual price.
Explanation: The convexity statistic for a bond is used to improve the estimate of the percentage price change provided by modified duration alone, no matter if it's an increase or decrease in the yield.

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