A bond valued at $200,000 has a duration of 8 and a convexity of 20. Assuming that the bond's spread relative to the benchmark curve increases by 25 basis points due to a credit downgrade, then the approximate change in the bond's market value is closest to: A. $3,988 B. $3,960 C. $3,970

The correct answer is A. Price Change = (-Duration * Yield change) + (0.5 * Convexity * Yield change2)) Price change = (-8 * 0.0025) + (0.5 * 20 * 0.00252) = -1.99% The bond's value will fall by approximately 1.990% * 200,000 = $3,988.

CFA Level 1 Question Of The Week - Fixed Income (6) - CFA Level 1

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This topic has 1 reply, 1 voice, and was last updated Jun-198:00 am by Matt_AnalystPrep.

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- Matt_AnalystPrep
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  - CFA Charterholder
  25 Jun 2019 at 6:50 pm
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  ::
  A bond valued at
  $200,000 has a duration of 8 and a convexity of 20. Assuming that the bond’s
  spread relative to the benchmark curve increases by 25 basis points due to a
  credit downgrade, then the approximate change in the bond’s market value is
  closest to:
  - A. $3,988
  - B. $3,960
  - C. $3,970
- Matt_AnalystPrep
  Participant
  - CFA Charterholder
  30 Jun 2019 at 8:00 am
  Up
  4
  ::
  The correct answer
  is A.
  
  Price Change = (-Duration * Yield
  change) + (0.5 * Convexity * Yield change2))
  
  Price change = (-8 *
  0.0025) + (0.5 * 20 * 0.00252) = -1.99%
  
  The bond’s value
  will fall by approximately 1.990% * 200,000 = $3,988.
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