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andytrader

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91# 跳转到 »
发表于 2012-3-31 16:09 | 只看该作者
The distinction between modified convexity and effective convexity is that:
A)
effective convexity accounts for changes in cash flows due to embedded options, while modified convexity does not.
B)
different dealers may calculate modified convexity differently, but there is only one formula for effective convexity.
C)
modified convexity becomes less accurate as the change in yield increases, but effective convexity corrects for this.


Effective convexity is the appropriate measure to use for bonds with embedded options because it takes into account the effect of the embedded options on the bond’s cash flows.

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andytrader

UID
223231 
帖子
520 
主题
166 
注册时间
2011-7-11 
最后登录
2013-8-21 
92#
发表于 2012-3-31 16:10 | 只看该作者
Which of the following statements is most accurate concerning the differences between modified convexity and effective convexity?
A)
Modified convexity takes into account changes in cash flows due to embedded options, while effective convexity does not.
B)
For an option-free bond, modified convexity is slightly greater than effective convexity.
C)
Effective convexity is most appropriate for bonds with embedded options.


Effective convexity is most appropriate for bonds with embedded options because it takes into account changes in cash flows due to changes in yield, while modified convexity does not. For an option-free bond, modified convexity and effective convexity should be very nearly equal.

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andytrader

UID
223231 
帖子
520 
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166 
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2011-7-11 
最后登录
2013-8-21 
93#
发表于 2012-3-31 16:11 | 只看该作者
The price value of a basis point (PVBP) for a 7-year, 10% semiannual pay bond with a par value of $1,000 and yield of 6% is closest to:
A)
$0.92.
B)
$0.28.
C)
$0.64.

PVBP = initial price – price if yield changed by 1 bps.

Initial price:

Price with change:

FV = 1000

FV = 1000

PMT = 50

PMT = 50

N = 14

N = 14

I/Y = 3%

I/Y = 3.005

CPT PV = 1225.92

CPT PV = 1225.28

PVBP = 1,225.92 – 1,225.28 = 0.64
PVBP is always the absolute value.

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clearlycanadian

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223232 
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2011-7-11 
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2013-10-21 
94#
发表于 2012-3-31 16:13 | 只看该作者
The price value of a basis point (PVBP) of a bond is $0.75. If the yield on the bond goes up by 1 bps, the price of the bond will:
A)
increase by $0.75.
B)
decline by $0.75.
C)
increase or decrease by $0.75.


Inverse relationships exist between price and yields on bonds. The larger the PVBP, the more volatile the bond’s price.

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clearlycanadian

UID
223232 
帖子
539 
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171 
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2011-7-11 
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2013-10-21 
95#
发表于 2012-3-31 16:13 | 只看该作者
In addition to effective duration, analysts often use measures such as Value–at–Risk (VaR) to estimate the price sensitivity of bonds to changes in interest rates because these measures also incorporate the effects of:
A)
time to maturity.
B)
embedded options.
C)
yield volatility.


The volatility of a bond’s yield should be considered along with the bond’s effective duration when estimating its price sensitivity to interest rates. Measures of price risk such as VaR account for yield volatility. Effective duration includes the effects of time to maturity and embedded options.

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