To Use the Concept of Duration to Analyze the Effect

question 48

Multiple Choice

To use the concept of duration to analyze the effect of changes in interest rates on the market value of an asset,a bank manager would multiply

• A) the negative of the duration of the asset by the change in the interest rate, ?i.
• B) the negative of the duration of the asset by ?i /(1 + i).
• C) the duration of the asset by the change in the interest rate, ?i.
• D) the duration of the asset by ?i /(1 + i).

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Definitions:

Semiannually

Occurring twice a year; used to describe the frequency with which certain financial or operational events take place, such as interest payments on bonds.

Equity Method

An accounting technique used to record an investor's proportional share of the net income and losses of an investee company in which the investor has significant influence but not full control.

Year-End Adjustment

Journal entries made at the end of an accounting period to account for incomes and expenditures in the correct accounting period.

Lower Of Cost

Refers to the accounting principle of valuing and reporting assets at the lower of its historical cost or the market value.