Question
22. Roberto, an assistant portfolio manager, was reviewing a potential buy list of corporate bonds. The list provided information on the effective duration and effective
22. Roberto, an assistant portfolio manager, was reviewing a potential buy list of corporate bonds. The list provided information on the effective duration and effective convexity adjustment assuming a 200 basis point change in interest rates for each corporate bond on the list. The senior portfolio manager, Jane noticed that Roberto, crossed out each bond with a negative convexity adjustment. When Jane asked Roberto why, he responded that a negative value meant that the particular corporate bond was unattractive. How do you think Jane should respond?
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