Bonds issued by the XYZ Corp. are currently callable at par value and trade close to par. The

bonds mature in 8 years and have a coupon of 8%. The yield on the XYZ bonds is 175 basis

points over 8-year US Treasury securities, and the Treasury spot yield curve has a normal,

rising shape. If the yield on bonds comparable to the XYZ bond decreases sharply, the XYZ

bonds will most likely exhibit:

A.

Negative convexity

B.

Increasing modified duration

C.

Increasing effective duration

D.

Positive convexity