Which of the Following Is True with Respect to Modified

question 5

Multiple Choice

Which of the following is true with respect to modified duration hedging?

• A) Modified duration hedging always works as a good approximation when yields change.
• B) Modified duration hedging always works except when yields changes are large.
• C) Modified duration hedging can only be applied to zero-coupon bonds.
• D) Modified duration hedging always works if combined with convexity hedging.
• E) Modified duration hedging works only for parallel shifts in the yield curve.

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Definitions:

Net Income

The remaining earnings of a company following the deduction of all expenses and taxes from its total revenue.

Cash Dividends

Payments made by a company to its shareholders from its profits or reserves, representing a share of the corporate earnings.

Financing Activities

Transactions and events that affect long-term liabilities and equity of a company, including issuing debt, repaying loans, and distributing dividends.

Fiscal Year

A one-year period used by governments and businesses for accounting and financial reporting, which may or may not align with the calendar year.