Financial Risk Manager Part 1

Get started today

Ultimate access to all questions.

Explanation:

The false statement is D.

A is true: both Macaulay duration and modified duration are expressed in time units, commonly years.
B is true: duration/convexity approximations are still based on a single-factor, parallel shift assumption.
C is true for a plain vanilla fixed-rate bond: convexity generally rises with maturity and falls as coupon rate or yield rises.
D is false: a callable bond can exhibit negative convexity at low yields, but that does not mean duration is negative. Duration is usually still positive, though it may become very low or behave nonlinearly.

Therefore, the exception is D.

Explanation:

The false statement is D.

A is true: both Macaulay duration and modified duration are expressed in time units, commonly years.
B is true: duration/convexity approximations are still based on a single-factor, parallel shift assumption.
C is true for a plain vanilla fixed-rate bond: convexity generally rises with maturity and falls as coupon rate or yield rises.
D is false: a callable bond can exhibit negative convexity at low yields, but that does not mean duration is negative. Duration is usually still positive, though it may become very low or behave nonlinearly.

Therefore, the exception is D.

Comments (0)

No comments yet.

Question 161.4. Each of the following is TRUE with respect to duration and convexity EXCEPT:

Exam-Like

Community

MManit

Last updated: April 18, 2026 at 11:32

Both modified and Macaulay duration are denoted in units of “years”

33.3%

To estimate bond price change with both duration and convexity, per two-term Taylor series, is still to employ a single-factor measure of sensitivity that assumes a parallel shift in the yield curve

16.7%

With respect to a plain vanilla bond (without embedded options), bond convexity increases with maturity, decreases with coupon rate and decreases with yield

16.7%

At low yields, a callable bond exhibits negative convexity and therefore negative duration

33.3%