SIE practice questionhardInterest rate risk
A pension fund has substantial investments in long-duration bonds. Which scenario creates the greatest concern about interest rate risk?
- AInterest rates fall sharply
- BInterest rates remain flat
- CInterest rates rise sharply✓ Correct answer
- DThe stock market rallies
Explanation
Why C — Interest rates rise sharply
Rising interest rates will reduce the value of long-duration (long-term) bonds most dramatically. The other scenarios pose less threat of price decline.
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