medium · Certified Financial Planner Risk Management
Ms. Gupta is analyzing the price sensitivity of a bond portfolio to interest rate changes.
If interest rates rise, how will the actual price of a high-convexity bond compare to the price estimated by its linear duration?
- The actual price will be higher only if the bond is a zero-coupon instrument.
- The actual price will be lower than the linear duration estimate.
- The actual price will be higher than the linear duration estimate.
- The actual price will exactly match the linear duration estimate.
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