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Suppose you hold 2 bonds: Bond A and Bond Z. Both have a coupon rate of 5% but Bond A has effective maturity of 3
Suppose you hold 2 bonds: Bond A and Bond Z. Both have a coupon rate of 5% but Bond A has effective maturity of 3 years while Bond Z has effective maturity of 10 years. If interest rates in the economy rise from 0.25% to 1% then, The price of both bonds rises but the increase is bigger for Bond A than Bond Z. The price of both bonds rises but the increase is bigger for Bond Z than Bond A. The price of both bonds falls but the decrease is bigger for Bond A than Bond Z. The price of both bonds falls but the decrease is bigger for Bond Z than Bond A. No conclusion can be drawn based on available information
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