A Portfolio Is Exposed to Interest Rate Increases Causing a Loss

question 35

Multiple Choice

A portfolio is exposed to interest rate increases causing a loss of capital when:

• A) the average duration of assets is less than the average duration of liabilities.
• B) both ZCBs and annuities are held.
• C) the average duration of assets is greater than the average duration of liabilities.
• D) neither ZCBs nor annuities are held.

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Definitions:

Normal Distribution

A bell-shaped frequency distribution curve that is symmetrical about the mean, showing that data near the mean are more frequent in occurrence.

Confounding Variables

Confounding Variables are external factors in a study or experiment that could influence or distort the relationship between the variables being examined.

Extraneous Variables

Variables that are not the focus of a study but can affect the outcome of research if not properly controlled.

Participants' Reactivity

The alteration of participants' behavior or responses due to the awareness of being observed or studied.