Reference no: EM133076064

The following questions relate to the convexity of the bond.

a) What is meant by the convexity of a bond and what is its significance?

b) What does negative convexity mean and when can it be possible?

c) What do you think of the following arguments concerning convexity (justify):

1) Declining returns lead to increased convexity.

2) At a given maturity, a lower coupon rate results in lower convexity.

3) With a given modified duration, a higher coupon rate results in a higher one convexity.

4) As the duration increases, the convexity decreases.