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115 CFA

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115.070.05.06 Fixed Income - Reading 46 -6. Bond Convexity

# 6. Bond Convexity

## h. calculate and interpret approximate convexity and distinguish between approximate and effective convexity;

## i. estimate the percentage price change of a bond for a specified change in yield, given the bond's approximate duration and convexity;

When is a bond convexity measure typically used?

To improve the estimate provided by duration, particularly for a large change in yield, a convexity measure can be used.

What is the formula for convexity measure?

$$ApproxCon = \frac{PV__ + PV_+ - 2 * PV_0}{(\Delta Yield)^2 * PV_0}$$

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- CFA