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Financial advisory
RES5Financial Advisory Services✓Two bond funds expect rising interest rates. Fund X holds long-duration bonds; Fund Y holds short-duration bonds. Which is MORE exposed to interest-rate risk and why?
Interest-rate risk is a form of market risk: when rates rise, existing fixed-rate bond prices fall, and the longer the portfolio's duration the larger the fall — so the long-duration fund is more exposed.
Reversing the duration effect or assuming fixed coupons shield bond prices from rate changes.
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