if benchmark yields were to fall, which bond in Exhibit 1 would most likely experience a decline in effective duration?
A) Ai bond
B) Bi bond
C) CE bond

Question

Quizplus · Accepted Answer

The effective duration of a bond measures how sensitive it is to changes in interest rates. Generally, longer duration bonds are more sensitive to interest rate changes than shorter duration bonds. Therefore, if benchmark yields were to fall, the bond with the longest duration in Exhibit 1 (which is the Ai bond with a duration of 9.2) would experience the biggest decline in effective duration. So, A) Ai bond is the best choice.

If Benchmark Yields Were to Fall, Which Bond in Exhibit