CFA Practice Question

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CFA Practice Question

What is the convexity adjustment to the percentage price change of an 11%, 15-year bond selling at par if the convexity measure is 40.625 and there is a 20 basis point change in yield?

A. 0.01625%
B. 0.8125%
C. 1.625%
Correct Answer: B

Convexity adjustment = 0.5 x 40.625x (.002)2x (100) = 0.8125%

User Contributed Comments 2

User Comment
robbiecow According to the CFAI book page 504, Convexity Adjustment uses .5 in the formula.
CJPerugini Do not square the % Change in YTM in decimal form (0.002^2) or else your result will be off by a factor of 2. Use (0.2^2/100) instead.
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