If Investors Rely Strictly on Modified Duration to Estimate the Percentage

question 66

Multiple Choice

If investors rely strictly on modified duration to estimate the percentage change in the price of a bond, they will tend to ____ the price decline associated with an increase in rates and ____ the price increase associated with a decrease in rates.

• A)underestimate; underestimate
• B)overestimate; overestimate
• C)underestimate; overestimate
• D)overestimate; underestimate

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Definitions:

Group Pressures

Different forms of influence that a group may exert on individual members to conform to certain behaviors or beliefs.

Scalar Chain Principle

A concept in organizational theory that suggests a clear line of authority from the top management to the lowest ranks.

Hierarchical Structure

An organizational structure where entities are ranked one above the other according to authority or status.

Managerial Overrides

When a manager or leader bypasses existing procedures, policies, or systems, often to make a decision or take direct action.