Certified Fund Manager (CFM) [cfm]

What does positive convexity indicate about a bond's price-yield relationship?

Price increases more than duration predicts when rates fall, and decreases less when rates rise Price changes are perfectly linear with rate changes Price always increases regardless of rate movement The bond pays higher coupons when rates rise

Correct Answer:

Price increases more than duration predicts when rates fall, and decreases less when rates rise

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