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SIE: Debt Securities
SIE practice questionmediumConvexity

Convexity is best described as:

  1. AThe time to maturity of a bond
  2. BA measure of how the duration of a bond changes when interest rates change✓ Correct answer
  3. CThe annual coupon payment divided by the market price
  4. DThe price at which a bond can be converted to stock
Explanation

Why BA 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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