yield curve, duration question (fixed income) all, following, question, increase

MonkeyBusiness

hi, this question is found in schweser fixed income selftest:
Q: Which of the following bonds would be the best one to own if the yield curve shifts down by 50 BP at all maturities?
a) 5 year 8%, 8% YTM
b) 4 year 8%, 8% YTM
c) 5 year 8%, 7.5% YTM
d) 5 year 8.5%, 8% YTM
the answer says the best one to own would be the one with highest duration, i.e. c). is that because the one with highest duration implies biggest price increase?
if the question had asked instead, which bond would be the best to own if the yield curve shifts up by 50 BP, would the correct answer be the bond with lowest duration??
thanks in advance..

whew1110

Yep, that’s right duration = IR sensitivity so the holder benefits when the YC moves down and increases values.
The opposite happens when the YC shifts upwards and discounts the asset’s CF by a greater amount and reduces it’s [present] values, so in a rising interest rate environment, low duration assets fare best (similar to low beta equities in a market that is moving down.