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You buy shares in a long-term, risk-free Treasury bond fund. Theaverage duration of the fund...

You buy shares in a long-term, risk-free Treasury bond fund. The average duration of the fund is 20. The next morning you wake up, and interest rates have increased by 1.5%. Using duration as a measure of risk, what do you think your return would have been? (Answer in percentages, e.g., if you think your return would be 5% then enter your answer as "5").

Solutions

Expert Solution

The market return and Interest rates are inversely proportional to each other.

Here, Duration is used as a measure of risk or the Return.

So, the Market return when interest rates have increased by 1.5 % = 20 / 1.015 = 19.7

Hence the return is 19.7.

jeff jeffy answered 2 years ago
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