c. describe positive convexity, negative convexity, and their relation to bond price
and yield;


 Convexity is a measure of the curvedness of the price-yield relationship. This curvedness is different for each bond.
 The lower the coupon, the greater the convexity.
 The longer the maturity, the greater the convexity.
 The lower the yield to maturity, the greater the convexity.
 In summary, the change in price of a bond comes from two sources: its modified duration and its convexity.
 The computation of the price change for a bond that is due to the convexity:
Convexity Effect = 1/2 * Price * Convexity * Δyield²


Callable bonds will exhibit negative convexity at certain price-yield combinations. Negative convexity means that as market yields decrease, duration decreases as well.
See

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