medium · Certified Financial Planner Retirement
The Beaumont family is comparing two bonds. Bond A has a linear duration estimate, while Bond B's price behavior is described as 'convex.'
If interest rates fall, how will Bond B's actual price compare to Bond A's estimate?
- Bond B's price will be lower than the linear estimate.
- Bond B's price will be slightly higher than the linear estimate.
- Bond B's price will be volatile and unpredictable compared to Bond A.
- Bond B's price will be exactly equal to the linear estimate.
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