AFC Investment Ltd. is a fixed-income investment firm that actively manages a government bond fund and a
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AFC Investment Ltd. is a fixed-income investment firm that actively manages a government bond fund and a corporate bond fund. Holdings of the government bond fund are mainly medium-term US Treasury securities but also include debt of highly rated developed- market sovereign issuers. About half of the corporate bond fund is invested in investment-grade issues, and the other half consists of high-yield issues, all with a mix of maturities and from a mix of North American, European, and Asian companies.
Explain why empirical duration is likely to be a more accurate risk measure for AFC’s corporate bond fund than for its government bond fund.
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