Bond Convexity

This problem practices the difference between duration and convexity, two core fixed income concepts that investment banking interviewers often use to test whether a candidate understands how bonds behave when interest rates move. Duration captures the first, linear estimate of price sensitivity to yield changes, while convexity captures the curvature, meaning how that sensitivity itself changes as yields move. A strong answer shows that the candidate can explain why convexity matters for pricing, hedging, and comparing bonds or portfolios, and why a portfolio with more convexity is not automatically more risky in the way interviewers usually mean by systematic interest rate risk.