For large interest rate increases,duration _____________ the fall in security prices,and for large interest rate decreases,duration ______________ the rise in security prices.
A)overpredicts; overpredicts
B)overpredicts; underpredicts
C)underpredicts; overpredicts
D)underpredicts; underpredicts
E)None of the options presented

Question

Quizplus · Accepted Answer

Duration overpredicts the fall in security prices for large interest rate increases and underpredicts the rise in security prices for large interest rate decreases due to the convexity of bond prices.

For Large Interest Rate Increases,duration _____________ the Fall in Security