If a Payment Received Two Years from Now Has a Present

question 131

Multiple Choice

If a payment received two years from now has a present value of $200 and the annual interest rate on the payment is 5 percent, then the future value of the payment is:

• A)$171.50.
• B)$190.50.
• C)$210.50.
• D)$220.50.

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Definitions:

Immunization

A strategy used in fixed income to shield a portfolio from interest rate fluctuations by aligning the durations of assets and liabilities.

Duration Matching

Duration matching is an investment strategy used to minimize the interest rate risk by matching the duration of assets and liabilities, ensuring changes affect both sides similarly.

Yield Curve

A graph showing the relationship between bond yields and their maturity dates, commonly used to predict economic changes.

Price Volatility

Refers to the degree of variation in the price of a financial instrument over time, indicating the risk or uncertainty of its value change.