Convexity Implies That Duration Predictions

Convexity implies that duration predictions:
I. Underestimate the percentage increase in bond price when the yield falls.
II. Underestimate the percentage decrease in bond price when the yield rises.
III. Overestimate the percentage increase in bond price when the yield falls.
IV. Overestimate the percentage decrease in bond price when the yield rises.

A) I and III only
B) II and IV only
C) I and IV only
D) II and III only

Correct Answer:

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