hard · Certified Financial Planner General Principles
The Solis family is concerned about 'Bond Convexity.' If interest rates rise by 2%, what will happen to their bond's true market price compared to the price predicted by linear duration?
- The true price will be slightly higher than the duration estimate
- The price will not change because convexity offsets the duration drop
- The true price will be slightly lower than the duration estimate
- The price change will be exactly what duration predicts
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