- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 46. Understanding Fixed-Income Risk and Return
- Subject 6. Bond Convexity

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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?

B. 24.75

C. 36.44

A. 49.5

B. 24.75

C. 36.44

Correct Answer: A

Convexity = [113.99576 + 116.51707 - 2 x 115.25]/[115.25 x 0.0015

^{2}] = 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=8% YTM(-15bp)=7.85 -> I/Y=3.925... ->PV(-)=116.5171 YTM(+15bp)=8.15 -> I/Y=4.075... ->PV(+)=113.9958 116.5171+113.9958-2(115.25)/((115.25)(.0015)^2) =0.0129/0.00025 =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. |

ashish100 |
WILL SOMEONE PLEASE EXPLAIN STO AND RCL FUNCTIONS?!! Thanks! :) |

ashish100 |
i got it. if you want to store lets the number 100. you can store in ten places in keys 0 - 9. Example Press 100 STO 1 to store. Then RCL 1 to recall. It will bring up the number you stored. |