Suppose You Hold a Bond and Interest Rates Suddenly Rise

question 8

Essay

Suppose you hold a bond and interest rates suddenly rise. Duration says that bond prices will fall a given amount. If Convexity is included in this estimate, will bond prices go above or below what Duration predicts?

---

Definitions:

Self-Monitoring Scale

A psychological measure that assesses an individual's ability to regulate their behavior in social situations based on the perceived social demands.

Reliable

The quality of being consistently good in quality or performance; able to be trusted or depended upon.

Measurement Error

The variation of a number around its true mean due to uncontrolled, essentially random influences; also called error variance.

Random

Characterized by a lack of order, predictability, or specific pattern, often used to describe events or processes.