If There Are Three Variables That Are Being Tested for Cointegration

question 9

Multiple Choice

If there are three variables that are being tested for cointegration, what is the maximum number of linearly independent cointegrating relationships that there could be?

• A) 0
• B) 1
• C) 2
• D) 3

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Definitions:

Promised Yield

The return that a bond issuer indicates to the bondholder that will be received, factoring in the interest rate and the term.

Cash Flow Matching

A strategy of investing in such a way that cash flows from the investments will meet the investor's outflows when needed, often used in pension planning and managing corporate finances.

Active Bond Portfolio

A portfolio of bonds managed with the intention of outperforming the market through various strategies, such as sector rotation and duration management.

Financial Institutions

Entities that provide financial services, including banks, insurance companies, pension funds, brokerage firms, and others.