You have an investment horizon of 6 years. You choose to hold a bond with a duration of 4 years. Your realised rate of return will be larger than the promised yield on the bond if ________.

Question

Quizplus · Accepted Answer

When interest rates increase, bond prices decrease. This means that if the investor sells the bond before maturity, they can receive a higher price than the price they paid for it. This results in a larger realised rate of return than the promised yield on the bond.

You Have an Investment Horizon of 6 Years