Due to the pledge I will not post the actual question, but just to get a feel of the answer. There was a question on bond price change based on duration. There were few choices but I thought that the valid once were either 8% or -8%. I picked up -8%. Do you guys recall and was that right? Thanks, DD
I believe I picked -8% as well.
Are we allowed to discuss the answers without giving away the question?
I think so. As the ethics says that the most important think when in two minds is to ask, are my intentions clear or does it violates the law? By sharing the answers, we get the solace and an opportunity to learn from each other in the process without having to reveal the actual questions. My 2 pence Best, DD
I picked -8 too…
there were two positive options, and two negative options the yield change and the price change in opposite directions, so you can eliminate two immediately the next point was to look at the sign of the convexity. so one of your answers is right, but I recall the change in yield being negative, and thus only the positive option could be correct
Duration is a positive number. Depending on yield’s up or down movement, price change will be + or -.
I agree. Does anyone remember whether the the yield change in the actual question was positive or negative? If the yield change was positive, then I guess -8% should be right otherwise getting closer to dec 
If they give you convexity and duration and ask for the total % price change… If duration is 5 and convexity is 10 and deltaY is 100bp then total % change is the sum of: dur effect=-5 * .01 and conv eff=10 * .01^2 ??? Guy in the seat next to me argued with me about duration effect having a negative in front of it.
Marlin, I reckon we are discussing a different question here, which didn’t test the convexity concept.
duration is negative, convexity is positive.
I’m 100% sure the answer was -8%.
nogiveup Wrote: ------------------------------------------------------- > duration is negative, convexity is positive. Very doubtful as that’s short a callable bond or something.
% change in price = -(duration) (Change in yield) + (convexity) (change in yield)^2 if we are discussing any with a decline in yield, than the change in price will be positive so long as 1) convexity isn’t a negative number that 2) when multplied by the square of the yield change greater than the product of duration and yield change I don’t know if we are speaking of the same question- did your yield go up, or down. i recall yield going down. If that is the case, -8% is wrong
th123 Wrote: ------------------------------------------------------- > % change in price = -(duration) (Change in yield) > + (convexity) (change in yield)^2 > > if we are discussing any with a decline in yield, > than the change in price will be positive so long > as 1) convexity isn’t a negative number that 2) > when multplied by the square of the yield change > greater than the product of duration and yield > change > > I don’t know if we are speaking of the same > question- did your yield go up, or down. i recall > yield going down. If that is the case, -8% is > wrong The yield was going down and the price was up by 15.43% if i remember correctly…
oldmonk Wrote: ------------------------------------------------------- > th123 Wrote: > -------------------------------------------------- > ----- > > % change in price = -(duration) (Change in > yield) > > + (convexity) (change in yield)^2 > > > > if we are discussing any with a decline in > yield, > > than the change in price will be positive so > long > > as 1) convexity isn’t a negative number that 2) > > when multplied by the square of the yield > change > > greater than the product of duration and yield > > change > > > > I don’t know if we are speaking of the same > > question- did your yield go up, or down. i > recall > > yield going down. If that is the case, -8% is > > wrong > > > The yield was going down and the price was up by > 15.43% if i remember correctly… I agree with both of you.
R6Chick Wrote: ------------------------------------------------------- > oldmonk Wrote: > -------------------------------------------------- > ----- > > th123 Wrote: > > > -------------------------------------------------- > > > ----- > > > % change in price = -(duration) (Change in > > yield) > > > + (convexity) (change in yield)^2 > > > > > > if we are discussing any with a decline in > > yield, > > > than the change in price will be positive so > > long > > > as 1) convexity isn’t a negative number that > 2) > > > when multplied by the square of the yield > > change > > > greater than the product of duration and > yield > > > change > > > > > > I don’t know if we are speaking of the same > > > question- did your yield go up, or down. i > > recall > > > yield going down. If that is the case, -8% > is > > > wrong > > > > > > The yield was going down and the price was up > by > > 15.43% if i remember correctly… > > I agree with both of you. I hope you are right…coz u save me a point…
old monk I am correct but the 15 is wrong, unfortunately the convexity value was a negative number-- so you effectively have the duration impact + -convexity=== this could have been a callable bond or something where the duration estimate overstates the price increase I remember this well as i reasoned myself into 15 during the test, only to check and find the error immediately after fortunately there were 239 other questions on the exam
the answer was +8 as th is right, i think… yield decline by 200bp with 5 for duration, so price went up 10% but then since convexity was negative the answer settled around +8%? not sure of exact #s
I don’t want to discuss the question and violate any ethics but I can tell you that 15 cannot possibly be the right answer because convexity was negative so the price of the bond could not have changed by more than the duration measure. Just remember the readings on Callable bonds and negative convexity… the price increases/decreases by less than that of a option free bond. Im pretty sure I remember the yeilds moving UP meaning a price decrease. Who knows… i hate discussing questions cuz it just makes me start questioning things and then im gonna start having really negative thoughts. Let’s just wait until we get our results… no point worrying now because we all marked our answers and we can’t change them.