A bond's sensitivity yield changes can be depicted on the price-yield -to-maturity graph as a _____ curve.

Question

Quizplus · Accepted Answer

The sensitivity of bond prices to changes in yields is often illustrated on a convex curve, that is, a graph that is bow-shaped. This is due to the inverse relationship between bond prices and yields. As yields rise, bond prices fall, but the decrease in price becomes less significant at higher yields. Conversely, as yields fall, bond prices rise, but the increase in price becomes increasingly significant at lower yields. This results in a curve that is convex, with increasing slope for decreasing yields and decreasing slope for increasing yields.

A Bond's Sensitivity Yield Changes Can Be Depicted on the Price-Yield