Convexity is a desirable feature of bonds because
A) as interest rates decline, the price of a low convexity bond decreases at a decreasing rate.
B) as interest rates decline, the price of a high convexity bond decreases at an increasing rate.
C) as interest rates decline, the price of a low convexity bond increases at a decreasing rate.
D) as interest rates decline, the price of a high convexity bond increases at an increasing rate.
E) as interest rates decline, the price of a high convexity bond decreases at a decreasing rate.

Question

Quizplus · Accepted Answer

Convexity measures the curvature in the relationship between bond prices and interest rates. A high convexity bond will have a price that increases at an increasing rate as interest rates decline, making it more desirable.

Convexity Is a Desirable Feature of Bonds Because