CFA Practice Question

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CFA Practice Question

Here are three bonds with their annualized modified duration, convexity and worst-case scenario ΔYield.

Bond | Modified Duration | Convexity | ΔYield
A | 4 | 13 | 20 bps
B | 6 | 50 | 15 bps
C | 10 | 150 | 10bps

Which bond has the highest interest rate risk in terms of price change on a percentage basis?
A. Bond A
B. Bond B
C. Bond C
Explanation: %ΔPrice = (-ModDur x ΔYield) + [1/2 x Convexity x (ΔYield)2]
A: -4 x 0.0020 + x13 x 0.00202 = -0.007974. B: -6 x 0.0015 + x50 x 0.00152 = -0.008944. C. -10 x 0.0010 + x150 x 0.00102 = -0.009925

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