CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

Which of the following statements is least accurate with respect to analyzing the interest rate risk of a security?
A. Securities with the higher duration will always have more sensitivity to changes in yields than securities with lower duration.
B. A high level of convexity is an indication that the security is more sensitive to increases in the interest rates.
C. A high price value of a basis point (PVBP) is an indication of an increased sensitivity to interest rate fluctuations.
Explanation: A high level of convexity is an indication that the security is LESS sensitive to increases in the interest rates. For instance, when interest rates increase, bond prices will fall; however, if that bond has a high degree of convexity, the fall in price will be less than that indicated by duration alone.

User Contributed Comments 3

User Comment
dblueroom Does convexity always serve as a cushion for falling bond price?
pjdeschenes Yes, but high convexity makes a bond MORE sensitive to FALLING interest rates.
chris54321 Which is a good thing, or for DB, not a bad thing
You need to log in first to add your comment.