Effective Duration

question 14

Multiple Choice

Effective duration:

• A) estimates when embedded options will be used.
• B) directly indicates how much the price of a security will change given a change in interest rates.
• C) is always greater than maturity.
• D) is a weighted average of the time until cash flows are received.
• E) All of the above

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Definitions:

Adverse Selection

A situation in financial markets where buyers and sellers have access to different levels of information, often leading to transactions where the party with less information is at a disadvantage.

Tech Support

A service provided by companies to help customers solve technical problems or issues related to their products or services.

Bureaucratic Structure

An organizational structure characterized by strict rules, a hierarchy of authority, and a clear division of labor.

Going Rate

The current standard price or wage rate for goods, services, or labor in a particular market or industry.