Which of the Following Is NOT a Benefit of the Spline

question 4

Multiple Choice

Which of the following is NOT a benefit of the spline method of estimating discount functions across a spectrum of maturities?

• A) Splines allow fitting curves flexibly to a high degree of fit.
• B) Splined curves are continuous.
• C) Spot and forward rates obtained from splined curves are always smooth.
• D) Splined curves allow fitting linear functions of maturity between knot points.

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Definitions:

Cash Sales

Cash sales refer to transactions where payment is made in full with cash at the time of the sale, without any credit.

Cheque Processing Time

The period it takes from when a cheque is issued until the funds are available in the payee’s account, reflecting bank processing durations.

Trade Discount

A reduction in the listed price of a product or service offered by sellers to buyers in the business-to-business sales.

Break-Even Default Rate

The rate at which the losses from defaulted loans equal the income generated from interest payments in a lending portfolio.