The fact that the rate of change in an asset's price varies with the level of interest rates is known as:
A)portfolio.
B)convexity.
C)maturity.
D)yield.
E)None of the options is correct.

Question

Quizplus · Accepted Answer

This phenomenon is known as convexity. Convexity is a measure of the curvature in the relationship between bond prices and bond yields. A positive convexity means that the bond's price will increase more for a decrease in interest rates than it will decrease for an equal increase in interest rates. Conversely, a negative convexity implies that a bond's price will decrease more for an increase in interest rates than it will increase for the same decrease in interest rates.

The Fact That the Rate of Change in an Asset's