vthomas Wrote: ------------------------------------------------------- > I chose flat (absolute) 4%. It is just the reason > being there was not convexity measure given. > > And as you know… that duration is a linear > measure (straight line) and convexity measure > adjusts for the convexity of the curve. Without > convexity given, we would not know where the > increase or decrease would be greater or less > than 4 %. > > Moreover, I came across a similar question in the > Schweser Q-Bank and the correct answer was an > absolute number and not the greater or lesser than > x number. > > Hope this helps… =================== ditto here
well, option-free bond has always convexity and it is always positive which means price decreases less than what duration says. convexity says how duration changes when yield change, and even convexity is not constant and changes with yield change.
answer for this question was less than 4 percent…remember the positive convexity for noncallable bond…
Guys, I suppose we all know what duration measures, and what convexity. we know the drawbacks etc, graphical presentation and can talk and write about it several pages… it’s about one tricky question, where the request is not clear , and you must quickly answer. I agree with spunboy about the Q-bank. guess what; I answered less than…and it was wrong, so when I encountered the question on the exam, as many of you did, I answered directly without thinking at all…It’s all about how CFAI wants us to understand the question, and not about what we know…