Which statement best describes duration and convexity in bond portfolios?

Which statement best describes duration and convexity in bond portfolios?

• A. They are measures of credit risk only.
• B. Duration measures sensitivity of price to interest rate changes; convexity measures the rate of change of duration; they help manage interest-rate risk.
• C. Duration is a measure of liquidity; convexity is a measure of call risk.
• D. They only apply to equities.

Answer: (B)