easy · Certified Financial Planner Investment Planning
The Ellison household is concerned about interest rate risk in their bond portfolio. The planner explains that while Duration provides a linear estimate of price changes, the actual price relationship is curved.
When interest rates fall, how does the true price of the bond compare to a linear duration estimate?
- The true price will be higher.
- The true price and estimate will be identical.
- The relationship depends on the bond's credit rating.
- The true price will be lower.
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