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
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? |