If the Bond Market Undergoes a Large Change in Yield

question 33

Multiple Choice

If the bond market undergoes a large change in yield (for example, more than 100 basis points) , then a bond's duration will

• A) overstate both the price appreciation when rates fall and the price decline when rates increase.
• B) overstate the price appreciation when rates fall and understate the price decline when rates increase.
• C) understate the price appreciation when rates fall and overstate the price decline when rates increase.
• D) understate both the price appreciation when rates fall and the price decline when rates increase.

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