Positive convexity on a bond implies that

Question

Quizplus · Accepted Answer

Positive convexity means that the price-yield relationship is curved, and prices increase at a faster rate as yields drop (i.e., the curve is steeper on the left side of the yield axis) than they decrease as yields rise (i.e., the curve is shallower on the right side of the yield axis). This is because as yields decrease, the bond's duration lengthens, resulting in larger price increases for every change in yield, whereas as yields rise, the bond's duration shortens, resulting in smaller price decreases for every change in yield.

Positive Convexity on a Bond Implies That