If two bonds have the same duration, higher convexity offers what?

• A. Greater interest rate protection.
• B. Less protection.
• C. No effect.
• D. Greater credit risk.

Answer: (A)

Convexity measures how much a bond’s price-yield relationship bends beyond the straight-line approximation provided by duration. When two bonds have the same duration, the one with higher convexity responds more favorably to yield movements: its price rises more if yields fall and falls less if yields rise. That means greater protection against interest‑rate risk, because larger moves in rates don’t erode the price as much and can even boost it when rates drop. So higher convexity translates to greater interest rate protection.