A Security Might Exhibit Negative Convexity Because

question 42

Multiple Choice

A security might exhibit negative convexity because:

• A) its duration is greater than its maturity.
• B) it has a fixed interest rate below current market rates.
• C) a bank has a negative GAP.
• D) it has embedded options.
• E) markets are not efficient.

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Definitions:

Pure Monopolist

A market structure where a single seller dominates, facing no competition in selling its products or services.

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, indicating the firm's overall financial gain.

Excess Capacity

A situation where a company or economy can produce more goods than are being demanded, indicating underused resources.

Average Total Cost

Average total cost is the total cost of production divided by the total quantity produced, representing the cost per unit of output.