The price-yield relationship for a bond will become more convex
A) For a low coupon bond.
B) For a high coupon bond.
C) For a long maturity bond.
D) Choices b and c.
E) Choices a and c.

Question

Quizplus · Accepted Answer

The price-yield relationship becomes more convex for a bond with a low coupon (choice a) because it will have more price sensitivity to changes in yield. It also becomes more convex for a bond with a longer maturity (choice c) because it will have a longer duration, which amplifies price changes in response to yield changes. Therefore, the correct answer is E, choices a and c.

The Price-Yield Relationship for a Bond Will Become More Convex