- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 2. Relationships between Bond Price and Bond Characteristics

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**CFA Practice Question**

An analyst determines that a 5.50% coupon option-free bond, maturing in seven years, would experience a 3% decrease in price if market interest rates rise by 50 basis points. If market interest rates instead fall by 50 basis points, the bond's price would increase by ______.

A. exactly 3%

B. less than 3%

C. more than 3%

**Explanation:**The bond is option-free and will therefore exhibit positive convexity. An equal change in rates will produce a greater percentage gain when rates decrease than the percentage loss produced when rates increase.

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