LOS h: Differentiate between modified convexity and effective convexity.
Q1. The distinction between modified convexity and effective convexity is that:
A) different dealers may calculate modified convexity differently, but there is only one formula for effective convexity.
B) modified convexity becomes less accurate as the change in yield increases, but effective convexity corrects for this.
C) effective convexity accounts for changes in cash flows due to embedded options, while modified convexity does not.
Q2. One major difference between standard convexity and effective convexity is:
A) effective convexity is Macaulay's duration divided by [1 + yield/2].
B) effective convexity reflects any change in estimated cash flows due to embedded bond options.
C) standard convexity reflects any change in estimated cash flows due to embedded options.
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发表于 2009-3-5 11:36
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