The error in the approximation increases as the size of the yield change increases because the price- yield curve is convex.

Name: The error in the approximation increases as the size of the yield change increases because the price- yield curve is convex.
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Quizplus · Accepted Answer

The price-yield curve is convex, meaning that as yield changes become larger, the linear approximation (such as using duration) becomes less accurate, leading to increased error.

The Error in the Approximation Increases as the Size of the Yield