8-51 If the Chosen Maturity Buckets Have a Time Period

question 84

Multiple Choice

8-51 If the chosen maturity buckets have a time period that is too long,the repricing model may produce inaccurate results because

• A)as the time to maturity increases,the price volatility increases.
• B)price changes will be overestimated.
• C)there may be large differentials in the time to repricing for different securities within each maturity bucket.
• D)the FI will be unable to accurately measure the quantity of rate sensitive assets.
• E)the FI will be unable to accurately measure the quantity of rate sensitive liabilities.

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Definitions:

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, usually expressed in years.

Bond Duration

A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years.

Time To Maturity

The remaining duration until the expiration date of a financial instrument, when its principal is due to be paid to holders.

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the bond's face value, and paid to bondholders at specified intervals until maturity.