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:

Culturally Defined

Aspects or norms that are determined and influenced by the culture in which they are found.

Non-verbal Meanings

Communication conveyed through means other than words, such as gestures, facial expressions, and body language.

Age

The length of time that a person or object has existed, often measured in years.

Height

The measurement of someone or something from base to top or from the ground to its highest point.