easy · Certified Financial Planner General Principles
The Solis household is worried about interest rate risk in their bond portfolio. Their lead position is a bond with a duration of 8 years.
If interest rates rise by 1%, which of the following best describes the actual price behavior of the bond?
- The price will increase due to the convex nature of the yield curve.
- The price will drop by slightly less than 8%.
- The price will drop by exactly 8%.
- The price will drop by more than 8%.
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