Which of the Following Is Likely to Have a Negative

question 25

Multiple Choice

Which of the following is likely to have a negative effective duration?

• A) A high coupon, interest only mortgage-backed security that is pre-paying at a high rate.
• B) A low coupon U.S. Treasury bond.
• C) Fed Funds purchased.
• D) Demand deposits
• E) None of the above can have a negative effective duration.

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Definitions:

Loanable Funds

The money available for borrowing, encompassing both the savings of individuals and institutions and the money created by banks.

Equilibrium Interest Rate

The interest rate at which the demand for funds equals the supply of funds, balancing savings with investment in the economy.

Loanable Funds Demanded

The total amount of funds sought after by borrowers in the financial market at a given interest rate.

Interest Rate

The percentage of an amount of money charged for its use per period of time.