Skip to content

CFA Level I · CFA Level I Exam · Yield-Based Bond Convexity and Portfolio Properties

Which statement best describes the price-yield relationship of an option-free fixed-rate bond?

The price-yield relationship of an option-free bond is a convex, downward-sloping curve. Price falls as yield rises, but the slope flattens at higher yields, so a yield decline raises price by more than an equal yield rise lowers it.

  1. AA linear inverse relationship
  2. BA convex, downward-sloping curveCorrect
  3. CA concave, downward-sloping curve

Explanation

For an option-free bond, price falls as yield rises, but the curve bends so that it is steeper at low yields and flatter at high yields. This shape is convex. A straight line ignores curvature, and a concave shape would imply price losses accelerate as yields rise.

Did you get it right without looking?

One question tells you little. A timed set on Yield-Based Bond Convexity and Portfolio Properties shows your real accuracy, how long you take and where you lose marks.

Practise Yield-Based Bond Convexity and Portfolio PropertiesFree diagnostic mock

More Yield-Based Bond Convexity and Portfolio Properties questions