SIE practice questionmediumConvexity
Convexity is best described as:
- AThe time to maturity of a bond
- BA measure of how the duration of a bond changes when interest rates change✓ Correct answer
- CThe annual coupon payment divided by the market price
- DThe price at which a bond can be converted to stock
Explanation
Why B — A measure of how the duration of a bond changes when interest rates change
Convexity measures the responsiveness of duration to interest rate changes. It is not related to maturity, current yield, or conversion price.
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