easy · Certified Financial Planner General Principles
Novak is comparing the price sensitivity of two bonds with identical durations.
Bond X has higher convexity than Bond Y. If interest rates fall significantly, which bond's price will increase more?
- Both bonds will increase by exactly the same amount because their durations are equal.
- Neither bond will increase, as convexity only applies when interest rates rise.
- Bond X
- Bond Y
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