medium · Certified Financial Planner Retirement
The Lindstrom household is evaluating two bonds for a portfolio. Bond A has a duration of 6 years. If interest rates rise by 1%, duration predicts a 6% drop in price. However, due to convexity, the actual price change will be:
- A drop of exactly 6%.
- Impossible to determine without knowing the bond's coupon rate.
- A drop of less than 6%.
- A drop of more than 6%.
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