Which of the following statements describe a property of bond convexity? Convexity:
I. increases as yields increase. II. increases with the square of maturity. III. measures the rate of change in duration. IV. increases if the coupon on a bond is increased.
A. I and III only. B. II and IV only. C. III and IV only. D. II and III only.
Convexity is inversely related to yield and is indirectly related to the coupon rate on a bond. Convexity is the second derivative of price with respect to yield, which means that convexity measures the rate of change in duration. Convexity increases with the square of maturity.
