jim8z3

Wow, I guess it all depends on the answers they gave you. I don't remember this question very well. Does anyone remember the possible anwers exactly. If the answers were something like,

price change of 4%
little less than 4%
little more than 4%

based on the info from Conquistador07 ((200bp move)) everyone on this thread got it wrong. Everyone skipped over the 200bp move, me included most likely. And I bet they did this because there was a similar question in the Schweser Q-bank.

Nice catch dubpg47

Benjiko

Now this has me thinking. Isn't the % change is price formula equal to:

-De*change in r + C*change in r^2

If the rate goes up the price should decrease by -4 * .02 + the effect of convexity. That would be -.08 + what ever effect convexity has which was not indicated.

Was this possibly one of the tricky CFAI questions as the choices were greater than 4%, 4% and less than 4%. With that said -8% is still less than 4%!

Any thoughts???

Kiakaha

Now this has me thinking. Isn't the % change is price formula equal to:

-De*change in r + C*change in r^2

If the rate goes up the price should decrease by -4 * .02 + the effect of convexity. That would be -.08 + what ever effect convexity has which was not indicated.

Was this possibly one of the tricky CFAI questions as the choices were greater than 4%, %4 and less than %4. With that said -8% is still less than %4!

Any thoughts???

Ionutzakis

Duration is an approximation, i.e. it is a straight line when the actual price change is convex. For a large BP change, it is always be less than for a yield increase and more than for a yield decrease.

The answer was less than in this case.

cchang

Yup. I remember that beauty. Straight from Schweser as well.

Less than, FTW.

dmar

It would be very close to 4 had it only changed by 100 or less than 100 bps, but when you have anything greater you need to adjust for convexity.

shootingstar

Straight up 4

invic

Less than.

FVPV

Hi,

Did that question tell you the convexity or was it just based on yield change....I can't remember?

Thanks.

JGovender

Yes! I had finished the test 28 minutes early and the proctor didn't let me leave so I just sat there thinking about the amount of drinking I'd be doing later that night when it came to me; I got the last answer wrong! I went back and changed it to less than 4%...I remember it asked what the price change would be if the yield increased by 200 bps given a duration of 4.