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b . A bond possesses a duration of 8 . 8 9 years. Suppose that market interest rates on comparable bonds were 7 . 5
b A bond possesses a duration of years. Suppose that market interest rates on
comparable bonds were percent this morning, but have now shifted downward
to percent. What percentage change in the bond's value occurred when interest
rates decreased by basis points? What advise will you have for the investor of
such bonds?
c The investments officer for Sillistine Savings is concerned about interest rate risk
lowering the value of the institution's bonds. A check of the bond portfolio reveals
an average duration of years. How could this bond portfolio be altered in order
to minimize interest rate risk within the next year?
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