Question

What does convexity measure in the context of assets and liabilities?

a.

The variability of cash flows with changes in interest rates

b.

The rate of change of duration with changes in interest rates

c.

The average time until a fixed income security repays its principal

d.

The weighted average of the time until cash flows are received

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (b).The rate of change of duration with changes in interest rates Explanation:Convexity measures the rate of change of duration with changes in interest rates, providing additional information beyond duration about how the value of assets or liabilities changes with interest rate fluctuations.

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Q. What does convexity measure in the context of assets and liabilities?
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