Fixed Income Q85
- A
When the investment horizon is greater than the Macaulay duration of a bond, coupon reinvestment risk dominates the market price risk.
- B
When the investment horizon is less than the Macaulay duration of a bond, the investor’s risk is to lower interest rates.
- C
When the investment horizon risk is equal to the Macaulay duration of a bond, the coupon reinvestment risk offsets market price risk.
- Option : B
- Explanation : When the investment horizon is less than the Macaulay duration of a bond, the investor’s risk is to higher interest rates.
