For Large Interest Rate Increases,duration _____________ the Fall in Security

question 13

Multiple Choice

For large interest rate increases,duration _____________ the fall in security prices,and for large interest rate decreases,duration ______________ the rise in security prices.

• A)overpredicts; overpredicts
• B)overpredicts; underpredicts
• C)underpredicts; overpredicts
• D)underpredicts; underpredicts
• E)None of the options presented

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Definitions:

Cash Inflows

Money received by a business from its operational, financing, and investing activities.

Discount Rate

The interest rate used to discount future cash flows of a financial instrument; a measure of the time value of money.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows, reflecting the opportunity cost of capital.

Present Value

Today's value of a future monetary sum or cash flow sequence, determined using a predefined rate of return.