CFA Level 2
Fixed Income

Impact of Interest Rate Volatility on Bond Prices

Medium Term Structure Dynamics Interest Rate Volatility

Consider a bond with a duration of 5 years and a yield of 6%. The bond's price is sensitive to changes in interest rates. As interest rate volatility increases, what can be expected with respect to the bond's price movement and risk characteristics?

Analyze the relationship between interest rate volatility and bond price sensitivity, while considering factors such as duration and convexity.

Hint

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