What’s the difference between:
Return impact = –(D * ∆y) + (1/2) Cvx * (∆y)^2
%∆P = [–D * ∆y + Cvx * (∆y)^2] * 100%
Why the 1/2 on the convexity? and the bracket around D * ∆y
This has shown up several times in the last couple of months.
Here’s one:
http://www.analystforum.com/forums/cfa-forums/cfa-level-i-forum/91320692
Smagician I have q
when we calculate return impact using convexity should we use convexity * change in yield ssquare or 1/2 convexity * change in yield square
which of to use in return impact
Sorry ignore I read the link
I’m just going to ignore the 1/2 if the question comes up on the exam then.
Then you’ll have something better than a 50% chance of getting the right answer.
If CFA Institute were mean, they’d have one answer choice with the ½ and one without it on every duration/convexity question.
So which one would be the best or most likely?
Without.
Kaplan says to use the 1/2 adjustment if the exam asks for return impact specifically…I’d just remember it to be safe!
Fair enough.