Question

A pension-oriented fund holds callable bonds which exhibit negative convexity as rates fall. When rates dropped 1%, bond price only increased 0.8% instead of the 1.2% you'd expect on positive convexity. What happened and how to respond?

A Reinvest proceeds
B Purchase discount bonds
C Buy interest rate caps
D Sell callable bonds to reduce risk
E No action
Practice Next

Hey! Ask a query

🎓
Think You're Ready for RBI Grade B?
RBI Grade B 2026 Phase 1 Memory Based Paper
  • 200 Questions with Detailed Solutions
  • Section-wise Coverage (GA, English, Quant & Reasoning)