Immediately below is the Schweser question of the day:
An investor purchases a coupon‐paying bond where the term of the bond is equal to his investment horizon. If interest rates rise over that period, it is most likely that realized return will be:
A coupon-paying bond will have a Macaulay duration less than the term. Therefore, the duration in this case is less than the investment horizon. When duration is less than investment horizon, an increase in interest rates will benefit the portfolio due to reinvestment at the higher rate, resulting in a realized return that is greater than initially expected.
Now, from some googling, I got that when duration<maturity (negative duration gap), then coupon re-investment risk dominates price risk. Ergo, if the rates go up, the investor leverages the benefits of re-investing coupons at a higher rate.
The profit in income on yield>loss from fall in bond price.
Am I missing anything here?