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**CFA Practice Question**

The convexity adjustment for a callable bond with a duration of 5.5 and convexity of -76, when the interest shock is 250 basis points, is ______.

A. -16.125

B. -11.375

C. -2.375

**Explanation:**Convexity adjustment = 0.5 (-76)(.025)(.025) 100 = -2.375

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**User Contributed Comments**
5

User |
Comment |
---|---|

CocaColas |
Why are we squaring .025 instead of multiplying by 2?! |

melmilesxx |
because the formula is convexity times change squared |

labsbamb |
2nd order estimate of bond price =convexity * (change of YTM)exp2 |

lazio |
if you don't know the answer, choose (c). there's no time left. |

etiennenguon |
How we CAN interprèt the convexity adjustment so far? |