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International Financial Markets
Finance & Accounting
Pages 6 (1506 words)
Duration and Bond Investment Management Task 1 Duration is the concept that is used to demonstrate and quantify the element of risk present in fixed-income securities. There are numerous kinds of fixed-income securities, different in nature due to their coupon rate, yields, prices, maturities, etc.
From this point, bond portfolios can be restructured in a systematic manner outlined as under: In the events when interest rates are expected to decrease, it would be advisable to restructure the bond portfolios drifting towards securities constituting long-term maturities. This will allow the portfolios to earn maximum capital gain because there is a stronger likelihood that the price of the bonds having long maturities are expected to increase by a greater amount than that of bonds having short maturities in case of a decrease in the yields. Conversely, in the events of an increase in the interest rates, it would be advisable to restructure the bonds portfolios drifting towards short-term securities as it may likely to result in decreasing the capital losses from a decrease in the prices of long-term maturities compared to the increase in the prices of securities having short-term maturities. ...
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