Question

In regard to bonds, convexity relates to what?

1) Interest rate risk
2) Credit risk
3) Price volatility
4) Liquidity risk

Answer 1

Convexity in regard to bonds relates to price volatility. When a bond has higher convexity, its price will be less affected by interest rate movements.

Step-by-step explanation:

Convexity in regard to bonds relates to price volatility. Convexity measures how the price of a bond changes in response to changes in interest rates. When a bond has higher convexity, its price will be less affected by interest rate movements, resulting in lower price volatility.