Bond Price Sensitivity and Convexity

Medium Fixed Income Valuation Duration And Convexity

A 10-year fixed-rate bond has a coupon rate of 5% and a face value of $1,000. The bond pays interest annually, and its yield to maturity (YTM) is currently 4%.

Given this information, which of the following statements correctly describes the bond's price sensitivity to interest rate changes based on its duration and convexity?

The bond's price will decrease by less than the convexity adjustment when interest rates rise.

The bond's price will increase by more than the convexity adjustment when interest rates fall.

The bond's price sensitivity to interest rates will be higher than the market value of the bond.

Hint

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