CFA Practice Question

There are 266 practice questions for this study session.

CFA Practice Question

If an investor's investment horizon is shorter than the Macaulay duration of a traditional (option-free) coupon bond,

A. coupon reinvestment risk will dominate.
B. market risk will dominate.
C. coupon reinvestment risk and market risk will offset each other.
Correct Answer: B

The investor's risk is to higher interest rates. The loss from selling the bond at a lower price due to a higher rate would be larger than the gain from reinvesting coupons at a higher rate.

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