Selecting Surrogate Variables Works Well If One Factor Loading for a Variable

question 2

True/False

Selecting surrogate variables works well if one factor loading for a variable is clearly higher than all other factor loadings.

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Definitions:

Interest Rate Risk

The risk that the value of an investment will decrease due to a change in interest rates.

Average Duration

The weighted average time it takes for an investor to receive all cash flows from a bond or a portfolio of bonds, factoring in the present value of those cash flows.

Perpetuity

A type of annuity that lasts forever, providing payments that continue indefinitely.

Yield

The income return on an investment, expressed as a percentage of the investment’s cost or current market value.