When the investment horizon and the bond's Macaulay duration are matched, a parallel shift in the yield curve prior to the first coupon payment will: A. increase the investor's return. B. decrease the investor's return. C. minimally affect the investor's horizon return.

The correct answer is C. When the investment horizon and the bond's Macaulay duration are matched, a parallel shift in the yield curve prior to the first coupon payment will not (or minimally) affect the investor's horizon return. When the investment horizon directly matches the Macaulay duration, the effect of a change in YTM on the sale price of a bond and on the reinvestment income offset each other.

CFA Level 1 Question Of The Week - Fixed Income (5) - CFA Level 1

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- Matt_AnalystPrep
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  18 Sep 2019 at 7:52 pm
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  When the investment horizon and the bond’s Macaulay duration are matched, a parallel shift in the yield curve prior to the first coupon payment will:
  - A. increase the investor’s return.
  - B. decrease the investor’s return.
  - C. minimally affect the investor’s horizon return.
- Matt_AnalystPrep
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  - CFA Charterholder
  27 Sep 2019 at 9:27 am
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  The correct answer is C.
  
  When the investment horizon and the bond’s Macaulay duration are matched, a parallel shift in the yield curve prior to the first coupon payment will not (or minimally) affect the investor’s horizon return. When the investment horizon directly matches the Macaulay duration, the effect of a change in YTM on the sale price of a bond and on the reinvestment income offset each other.
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