CFA Practice Question

There are 266 practice questions for this study session.

CFA Practice Question

Which of the following statements is the LEAST accurate with respect to the price volatility characteristics for option-free bonds?
A. A convexity adjustment won't have any impact on estimating the new bond price unless the yield change is fairly significant.
B. The convexity adjustment to the duration estimate will always be positive for option-free bonds.
C. At very high or very low levels of yield, the convexity adjustment will be the greatest.
Explanation: At very high or very low levels of yield, the price curve of a bond flattens out. However, convexity measures the curvature. Thus, when the pricing curve is flat, there will be less curvature and the convexity adjustment will be the least.

User Contributed Comments 1

User Comment
nessi Convexity is by definition negative, therefore an increase in yields will put downward preasure on the bond´s price, while a decrease will put upward preasure on the bond´s price.
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