A 7-year, 6% coupon callable bond is currently trading at 96.25.  The result of a backward induction valuation model indicates that if yields were to increase by 25 basis points, the new fair value of the bond would fall to 94.80.  On the other hand, if the yields were to decrease by 25 basis points, the new fair value of the bond would rise to 96.98.  Which of the following would best estimate the effective convexity of this bond?
A) -598
B) -342
C) 342
D) 264

The correct answer is: a)


  1. Donald has been putting aside money for his retirement into a Roth IRA for six years.  Although ...

    The correct answer is A) In a Roth IRA, there is no required distribution date as there is in a traditional IRA.
  2. According to SEC Release IA-1092, which of the following would NOT qualify as an ...

    The correct answer is C). SEC Release IA-1092 considers financial planners, pension consultants and sports and entertainment ...
  3. Your client, Todd, owns 100 shares HAT stock in his taxable stock portfolio ...

    The correct answer is a): Since Todd owns the stock and expects another stagnant year ahead, he would employ a covered call ...
  4. An individual has started investments of $100/month into a spread-load ...

    The correct answer is b. When a periodic payment (or contractural) plan company is organized as a spread-load company, it ...
  1. No results found.

You May Also Like

Related Articles
  1. No results found.
Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!