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**CFA Practice Question**

Calculate the convexity adjustment to percentage price change for a 9%, 20 year bond priced to yield 6% with a change in yield of 30 basis points. The convexity measure is 82.01.

A. 7.38%

B. 0.0738%

C. 0.82%

**Explanation:**The convexity adjustment to percentage price change = convexity measure * change in yield squared * 100. Thus in this case the convexity adjustment to percentage price change = 82.01 * (.003*.003) * 100 = .0738%. This is an approximation of the percentage price change that is not explained by duration.

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**User Contributed Comments**
7

User |
Comment |
---|---|

mpapwa22 |
Guys..help. 30 basis points, is it not 30 divided by 100? |

schelsea |
30 basis points = 0.3 Then divide 0.3 by 100 to get it in % |

Oarona |
mpapwa22: Remember this, 100 basis points=1% implying that 30 basis points = 0.3%=0.003. |

Procbaby1 |
1bp = .0001 |

nfressell2 |
What happened to (1/2)*C*Y^2? |

harrybay |
Yeah same question as nfressell |

ConnerVP1 |
Agree, shouldn't it be (1/2)? Unless the convexity was a semiannual measure and they multiplied the whole equation by 2 to make it annual? |