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.

---

Definitions:

Interval Measures

A scale of measurement where the difference between any two consecutive measures is the same, but it does not have a true zero point, e.g., temperature scales.

Equal Intervals

A measurement scale where the difference between values is the same across the scale.

True Zero

A point on a scale which represents a complete absence of the measured entity, not merely an arbitrary point.

Powerful

Having great control, influence, or effect on others or outcomes.