CFA Practice Question

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CFA Practice Question

Which of the following interpretations of duration and convexity is true?

I. Effective duration does not take into account the bond price's sensitivity to credit risk.
II. Portfolio convexity is the weighted average of the individual bonds' convexities.
III. Portfolio convexity will only provide meaningful figures for changes in portfolio value, if there is a parallel shift in the yield curve.
A. I and II
B. I and III
C. I, II and III

User Contributed Comments 3

User Comment
9630 same degree of interest rate risk if yield curve shift is parallel.
prtfw why does it have to be a parallel shift for duration and convexity to work? is there any measure that works for non-parallel shifts?
Paulvw prtfw: Key rate duration.
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