Which of the following statements is incorrect?
A)Convexity is a desirable effect to a portfolio manager because it is easy to measure and price.
B)All fixed-income assets exhibit convexity in their price-yield relationships.
C)The greater is convexity, the more insurance a portfolio manager has against interest rate increases and the greater potential gain from rate decreases.
D)The fact that the capital gain effect for rate decreases is greater than the capital loss effect for rate increases is caused by convexity in the yield-price relationship.

Question

Quizplus · Accepted Answer

Convexity is a desirable effect to a portfolio manager because it provides a measure of the potential risk and return trade-off in a bond or fixed-income portfolio. However, it is not necessarily easy to measure and price. The correct statement should be that convexity is a desirable effect to a portfolio manager because it provides a measure of the potential risk and return trade-off in a bond or fixed-income portfolio, and it helps to quantify the impact of interest rate changes on the price of fixed-income securities.

Which of the Following Statements Is Incorrect