Please answer both specifically You own a bond portfolio and expect the market i

Question

Please answer both specifically

You own a bond portfolio and expect the market interest rate to increase for the foreseeable future. (a) What should you do with regards to the Duration of the portfolio and your own investment horizon? (b) What are the two reasons for doing so?

You own a bond portfolio and expect the market rate of interest to decrease for the foreseeable future. (a) What should you do with regards to the Duration of the portfolio and your own investment horizon? (b) What are the two reasons for doing so?

Explanation / Answer

Answer :-

1.) When interest rates change, a bond’s price will change in the opposite direction of rates by a corresponding amount. For example, if a bond’s duration is 5 years and interest rates rise 1%, than expect the bond’s price to fall by approximately 5%.

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