Question: A fund manager is considering purchasing an exceedingly complicated bond issue. It is complicated since it contains several embedded options. The manager wishes to evaluate

A fund manager is considering purchasing an exceedingly complicated bond issue. It is complicated since it contains several embedded options. The manager wishes to evaluate the bonds interest rate risk in order to assess the impact of having it in his present portfolio. The fund manager contacted the investment banker who is in charge of this issue to know the duration of this bond. The investment bank estimated that the duration could be 7. The fund manager asked his analyst to estimate the duration of this bond and he found that the duration could be 10. Explain why such difference in the estimated duration.

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