For Large Interest Rate Shocks and Large Convexity of a Fixed-Income

question 44

Multiple Choice

For large interest rate shocks and large convexity of a fixed-income security or portfolio:

• A)the error will not change compared to smaller interest rate shocks and lower convexity
• B)the error will be smaller compared to smaller interest rate shocks and lower convexity
• C)the error will be greater compared to smaller interest rate shocks and lower convexity
• D)there will be no error as duration measures changes accurately

---

Definitions:

Strict Interpretation

The judicial practice of applying a narrow, literal, and precise reading of legal texts or statutes.

Force Majeure Clause

A contract term anticipating some catastrophic event usually exempting liability when such an event interferes with performance of the contract.

Catastrophic Event

An unexpected, large-scale disaster that causes significant -physical, economical or environmental damage or loss of life.

Condition Subsequent

A contract condition that, when it occurs, ends the party's obligation to perform under the contract.