Question
Flight-to-safety phenomenon refers to the situation when investors run away from risky assets and re-balance their portfolios with safer investments. The financial crisis 2008-2009 provides
"Flight-to-safety" phenomenon refers to the situation when investors run away from risky assets and re-balance their portfolios with safer investments. The financial crisis 2008-2009 provides a great example of such phenomenon when mutual funds divested much of their equities and risky corporate bonds of their portfolios. Suppose before the crisis Fund A invested solely in long-term corporate bonds and after the crisis it replaced 10% of its portfolio with T-bills. All else equal, such behavior will most likely result in the funds portfolio duration:
a. Being unchanged.
b. Being indeterminate.
c. Being decreased.
d. Being increased.
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