The higher yield will be realized if the bond is held to maturity (and the coupon are invested at the same higher rate), this problem has a 1 year horizon, so bond price is the key. high yield -> bond value drops-> unfavorable.
It apepars to me, there are never situations were increasign yield is good on this exam. Every question I see, if there is greater duration, or interest rates increase, its is almost always negatively related to portfolio value.
Is there ever a situation, in you guys observations, other than maybe some question about cash flow certainty where increasing interest rates and higher durations in conjunction are good?