Common Cause Variation

question 72

Multiple Choice

Common cause variation

• A)Cannot be explained except in an aggregate sense
• B)Is easily detectable with statistical methods and control charts
• C)Cannot be reduced through better technology, process design, or training
• D)Is the responsibility of the workers who run the processes

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Definitions:

Reinvestment Rate Risk

The risk that the yield from reinvesting cash flows will be lower than the initial investment's yield, typical in fixed-income securities.

Zero Coupon Bonds

Bonds that do not pay periodic interest payments and are instead sold at a discount from their face value and redeemed at maturity for the full face value.

Coupon Payments

Periodic interest payments made to bondholders, usually on an annual or semi-annual basis, as compensation for investing in the bond.

Maturity Risk Premium

The additional return that investors demand for bearing the risk associated with holding a longer-term debt instrument.