Because of convexity, when interest rates change, the actual bond price will ________ the bond price predicted by duration.
A) always be higher than
B) sometimes be higher than
C) always be lower than
D) sometimes be lower than

Question

Quizplus · Accepted Answer

Convexity causes the actual bond price to be higher than the price predicted by duration when interest rates change, because duration predicts a linear change in price, while convexity accounts for the curvature in the price-yield relationship, leading to a higher price adjustment.

Because of Convexity, When Interest Rates Change, the Actual Bond