We expect the yields of maturity to increase by 1% from their present level. We have a 25 year 8% paying bond with a required rate of 7%. We want to switch to a 4 year 8% bond with a market rate of 6%. What shall we gain if we act on our expectation, and it transpires. If rates instead increase, what will be the result?

Our shift requires an analysis of the determinants of duration.