Suppose the Duration of a Bond Portfolio Is 2

question 7

Multiple Choice

Suppose the duration of a bond portfolio is 2. This means

• A) The final cash flow from the portfolio will occur in two years.
• B) The weighted-average maturity of the portfolio's cash flows is 2 years.
• C) The portfolio is fully equivalent to a 2-year zero-coupon bond.
• D) The portfolio is fully equivalent to a 2-year par-coupon bond.

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Definitions:

Confidence Interval

A range of values, derived from sample data, that is likely to contain the true population parameter with a certain degree of confidence.

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The total amount of money that an individual earns in one year from their employment.

Plug-in Principle

A statistical method that involves estimating unknown parameters by directly substituting sample statistics (from collected data) into formulas in place of population parameters.