Convexity Implies That Duration Predictions

question 60

Multiple Choice

Convexity implies that duration predictions:
I. Underestimate the percentage increase in bond price when the yield falls.
II. Underestimate the percentage decrease in bond price when the yield rises.
III. Overestimate the percentage increase in bond price when the yield falls.
IV. Overestimate the percentage decrease in bond price when the yield rises.

• A) I and III only
• B) II and IV only
• C) I and IV only
• D) II and III only

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Definitions:

Mislaid

Property that is intentionally placed somewhere and then forgotten by the owner.

Abandoned

Something or someone that is abandoned has been left behind or given up on, often leading to a state of neglect or disuse.

Lost

Unable to find one's way; not knowing one's whereabouts.

Common Carriers

Entities that offer transportation services to the public under the regulation of governmental authority.