For Large Interest Rate Shocks and Large Convexity of a Fixed-Income

question 44

Multiple Choice

For large interest rate shocks and large convexity of a fixed-income security or portfolio:

• A)the error will not change compared to smaller interest rate shocks and lower convexity
• B)the error will be smaller compared to smaller interest rate shocks and lower convexity
• C)the error will be greater compared to smaller interest rate shocks and lower convexity
• D)there will be no error as duration measures changes accurately

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Definitions:

Domain

In mathematics, the set of all possible input values for which a function is defined.

Rational Function

A function represented by the ratio of two polynomials, where the denominator is not zero.

Rational Expression

A rational expression is a fraction where the numerator and/or the denominator are polynomials.

Simplify

The process of reducing a mathematical expression or equation to its most concise and simple form, removing parenthesis and combining like terms when possible.