A Statistical Measure of the Degree to Which Securities' Returns

question 20

Multiple Choice

A statistical measure of the degree to which securities' returns move together is called a

• A)variance.
• B)correlation coefficient.
• C)standard deviation.
• D)geometric average.

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Definitions:

Effective Maturity

The average time until a bond is repaid, considering possible calls or prepayments, which might alter the time frame for return on investment.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, often used in financial analyses to find an average value wherein each data point can carry a different weight.

Convexity

A measure of the curvature in the relationship between bond prices and yield, indicating how the duration of a bond changes as interest rates change.

Duration Predictions

Predictions about the length of time it will take for the price of a bond to be repaid by its internal cash flows.