CFA Practice Question

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CFA Practice Question

What is the convexity of a 10%, semi-annual coupon, 12-year bond selling for 115.25 if there is a 15-basis point shock?

A. 49.5
B. 24.75
C. 36.44
Correct Answer: A

Convexity = [113.99576 + 116.51707 - 2 x 115.25]/[115.25 x 0.00152] = 49.5

User Contributed Comments 14

User Comment
kalps how do you get this anyone ?
Gina Calculate YTM for P0:
PV=-115.25; N=24; PMT=5; FV=100 -> I/Y=3.9998

YTM(-15bp)=7.85 -> I/Y=3.925... ->PV(-)=116.5171
YTM(+15bp)=8.15 -> I/Y=4.075... ->PV(+)=113.9958

=49.74 (which is as close as I get to nr A)
stefdunk don't round the numbers. I tried 114.00 and 116.52, and got 76 (and change)
mtcfa The convexity MEASURE is different from the convexity ADJUSTMENT.
rishtap Should I assume every bond has a semiannual pay in the exam, or will the question be more specific?
raymondg Yes bonds are always to be worked semi annual
jmelville You need to round the original YTM from 7.999639 to 8.00% (i.e. down to whole basis points), however when it comes to the I/Ys you need to leave them at 3.925 and 4.075 (i.e. 3 decimal places - basis point rounding only applys to the YTMs).
johntan1979 Rounding the YTM is not really the big issue here (0.000361% difference). It is rounding the V- and V+ that makes a lot of difference, just like what stefdunk said. Don't round! Practice using the STO and RCL functions.
gill15 I still cant get over this section ---- We're this far into bonds and somebody is asking if every bond has semi annual payments...

people must be WAY too tired of CFA now that we're in Session 16
CHUCKYT The formula in the notes and the CFA text does not multiply the initial PV by 2 in the denominator for the convexity formula. According to the CFA text the solution here should by aprox. 49.50
nfressell2 Rounding the ytm certainly makes the difference
ascruggs92 Assume semi-annual pay unless stated otherwise. This question happens to specify for you rishtap, so no assuming is necessary.

Thanks! :)
ashish100 i got it.

if you want to store lets the number 100. you can store in ten places in keys 0 - 9.
Press 100 STO 1 to store.
Then RCL 1 to recall. It will bring up the number you stored.
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