You have an investment horizon of 6 years.You choose to hold a bond with a duration of 6 years and continue to match your investment horizon and duration throughout your holding period.Your realized rate of return will be the same as the promised yield on the bond if
I.interest rates increase
II.interest rates stay the same
III.interest rates fall

Question

Quizplus · Accepted Answer

If you match the bond's duration with your investment horizon and continue to do so, your realized rate of return will equal the bond's promised yield regardless of whether interest rates increase, stay the same, or fall. This is because the duration matching strategy immunizes the portfolio against interest rate changes.

You Have an Investment Horizon of 6 Years