In this chapter we use analytical duration.This approach assume that benchmark yield and spread are uncorrected
But in real life benchmark yield and spread are often correlated so it is captured by empirical duration it uses statistical approach
For a government bond there is little risk so in this case analytical and empirical duration would be same because bond price is largely driven by change in benchmark yield curve.But for high yield bonds with significant credit risk the analytical and empirical duration would be different.In market stress the investor will shift to government bond so price will increase and yield will fall simultaneously spread on corporate bond increases this increase in spread will fully or partially offset by decline in government benchmark yield
So there are two approaches
In this chapter we use analytical duration.This approach assume that benchmark yield and spread are uncorrected
But in real life benchmark yield and spread are often correlated so it is captured by empirical duration it uses statistical approach
For a government bond there is little risk so in this case analytical and empirical duration would be same because bond price is largely driven by change in benchmark yield curve.But for high yield bonds with significant credit risk the analytical and empirical duration would be different.In market stress the investor will shift to government bond so price will increase and yield will fall simultaneously spread on corporate bond increases this increase in spread will fully or partially offset by decline in government benchmark yield
so option c is correct for this question