In Calculating the Value at Risk (VAR) of Fixed-Income Securities

question 10

Multiple Choice

In calculating the value at risk (VAR) of fixed-income securities in the RiskMetrics model,

• A)the VAR is related in a linear manner to the DEAR.
• B)the price volatility is the product of the modified duration and the adverse yield change.
• C)the yield changes are assumed to be normally distributed.
• D)All of the options.
• E)the price volatility is the product of the modified duration and the adverse yield change and the yield changes are assumed to be normally distributed.

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Definitions:

Liquidity

The ability of an asset to be quickly converted into cash or the ability of a company to meet its short-term financial obligations.

Federal Government

The national government of a federated state, which holds the authority to govern at a national level, possessing powers typically outlined in a constitution.

Stockholders

Individuals or entities that own shares in a corporation, granting them certain rights and interests in the company's performance and governance.

Long-Term Creditors

Individuals or institutions that lend money to an entity with repayment terms extending beyond one year.