Convexity of a bond is ___________.

Convexity of a bond is ___________. 

A. the same as horizon analysis

B. the rate of change of the slope of the price-yield curve divided by the bond price

C. a measure of bond duration

D. none of these options








Answer: B

You have a 15-year maturity, 4% coupon, 6% yield bond with duration of 10.5 years and a convexity of 128.75. The bond is currently priced at $805.76. If the interest rate were to increase 200 basis points, your predicted new price for the bond (including convexity) is _________.

You have a 15-year maturity, 4% coupon, 6% yield bond with duration of 10.5 years and a convexity of 128.75. The bond is currently priced at $805.76. If the interest rate were to increase 200 basis points, your predicted new price for the bond (including convexity) is _________. 

A. $638.85

B. $642.54

C. $666.88

D. $705.03








Answer: C

You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is _________.

You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is _________. 

A. $1,098.45

B. $1,104.56

C. $1,113.41

D. $1,124.22








Answer: D

Convexity implies that duration predictions:

Convexity implies that duration predictions:

I. Underestimate the percentage increase in bond price when the yield falls.
II. Underestimate the percentage decrease in bond price when the yield rises.
III. Overestimate the percentage increase in bond price when the yield falls.
IV. Overestimate the percentage decrease in bond price when the yield rises.



A. I and III only

B. II and IV only

C. I and IV only

D. II and III only






Answer: C