# Convexity & Duration

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Example 1-7: FRl\1 Exam 1998--Question 17 A bond is trading at a price of 100 with a yield of 8%. If the yield increases by 1 basis point. the price of the bond will decrease to 99.95. If the yield decreases by 1 basis point. the price of the bond will increase to 100.04. What is the modified duration of the bond? a) 5.0 b) -5.0 c) 4.5 d) -4.5 Example 1-6: FRl\1 Exam 1998--Question 22 What is the price impact of a 10-basis-point increase in yield on a 10-year par bond with a modified duration of 7 and convexity of 50? a) -0.705 b) -0.700 c) -0.698 d) -0.690 Example 1-8: FRl\1 Exam 1998--Question 20 Coupon curve duration is a useful method for estimating duration from market prices of a mortgage-backed…show more content…
If the rates rise by 25 basis points, then the bond portfolio value will: a) Decrease by \$11,430 b) Decrease by \$21,330 c) Decrease by \$12,573 d) Decrease by \$23,463 Example 1-18: FRM Exam 2000-Question 110 Which of the following statements are true? I. The convexity of a 10-year zero-coupon bond is higher than the convexity of a lO-year, 6% bond. n. The convexity of a 10-year zero-coupon bond is higher than the convexity of a 6% bond with a duration of 10 years. ill. Convexity grows proportionately with the maturity of the bond. IV. Convexity is positive for all types of bonds. V. Convexity is always positive for "straight" bonds. a) I only b) I and n only c) I and V only d) n, ill, and V