Positive convexity in bond prices implies all but which of the following statements? A) As yields increase, changes in yield have a smaller effect on bond prices. B) As yields decrease, changes in yield have a larger effect on bond prices. C) The price volatility of non-callable bonds is inversely related to the level of market yields. D) Bond prices approach a ceiling as interest rates fall. ************ I found this question on Qbank and it says answer is D. But when P-Y curve is positively convex (option free bond) then why will it hit ceiling or upper bound when interest rates fall ? It will asymptotically reach floor when interest increase. Any opinions ?
I got it… guess didn’t look at the question properly …
i still dont understand it
Better not to think it for too long…just draw the curve and axes, this is the only thing you have to do.