CFA Practice Question

There are 490 practice questions for this study session.

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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