Question

As the Portfolio Manager, explain the ways to measure the bond’s

price volatility in managing the fund strategies.

Answer 1

A bond’s volatility depends on two factors: its coupon rate and when it will be retired (at maturity or call date).

Other things being equal, the general rule is that: The longer the time until retirement, the greater the price volatility.

The lower the coupon rate, the greater the price volatility.