easy · Certified Financial Planner Retirement
Darby is reviewing a bond portfolio and notices that interest rates are expected to fall.
If Darby wants to understand how the true price of the bonds will change relative to a linear duration estimate, which statement is most accurate regarding bond convexity?
- Convexity and duration will provide identical price estimates when interest rates fall.
- The true price will always be slightly lower than the linear duration estimate.
- The true price will be identical to the estimate only for zero-coupon bonds.
- The true price will always be slightly higher than the linear duration estimate.
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