问题如下：
3. In Exhibit 2, the bond whose effective duration will lengthen if interest rates rise is:
选项：
A.Bond #3.
B.Bond #4.
C.Bond #5.
解释：
B is correct.
Effective duration indicates the sensitivity of a bond’s price to a 100 bps parallel shift of the benchmark yield curve assuming no change in the bond’s credit spread. The effective duration of an option-free bond such as Bond #3 changes very little in response to interest rate movements. As interest rates rise, a call option moves out of the money, which increases the value of the callable bond and lengthens its effective duration. In contrast, as interest rates rise, a put option moves into the money, which limits the price depreciation of the putable bond and shortens its effective duration. Thus, the bond whose effective duration will lengthen if interest rates rise is the callable bond, i.e., Bond #4.
如果此题问的是利率下降呢？是不是就是putable bond的ED更大了？
