Which of the Following Statements Is False

question 13

Multiple Choice

Which of the following statements is false?

• A) As interest rates change, the market values of the securities and cash flows in the portfolio change as well, which in turn alters the weights used when computing the duration as the value-weighted average maturity.
• B) The duration of a portfolio of investments is the simple average of the durations of each investment in the portfolio.
• C) Adjusting a portfolio to make its duration neutral is sometimes referred to as immunizing the portfolio, a term that indicates it is being protected against interest rate changes.
• D) When the durations of a firm's assets and liabilities are significantly different, the firm has a duration mismatch.

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Definitions:

Probability Distribution

A math function tasked with computing the odds of different potential outcomes during an experiment.

Multiple Regression Model

A statistical technique that uses several explanatory variables to predict the outcome of a response variable.

Degrees of Freedom

Degrees of freedom refer to the number of independent values or quantities which can be assigned to a statistical distribution or to a system without violating any constraint.

Sum of Squares

A statistical measure of the dispersion of observation values given by the sum of the squared differences from the mean.