What is the effect of rising interest rates on a Bond Fund?

When interest rates go up, the prices of fixed-rate bonds go down (since you can now get bonds with higher coupon rates). So the value of a bond fund would go down.

Duration is a measure of the sensitivity of bond prices to interest rates. Mathematically, the relative change in value is approximately equal to the duration times the change in interest rates, or

dV/V ~= D * -dY

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So a fund with an average duration of 5 years would go down about 5% (to about $950) if interest rates increased 1%.