Bonds a and B Both Have a Duration of Exactly

question 15

Multiple Choice

Bonds A and B both have a duration of exactly one year. An equally-weighted portfolio of these bonds will have a duration of

• A) Greater than 1 year because duration is additive.
• B) Equal to one year because the average duration is still one year.
• C) Less than one year, because duration is a measure of risk, and combining two bonds into a portfolio diversifies away risk.
• D) Cannot say because the outcome depends on the interaction of specific cash flows of both bonds.

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Definitions:

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A class of psychoactive substances that cause perceptual anomalies, sometimes including hallucinations, alterations in thought processes, and variations in consciousness.

LSD

Lysergic acid diethylamide, a powerful hallucinogenic drug that alters perception, moods, and various cognitive processes.

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A concentrated resin cake or ball produced from the pressed kief of the cannabis plant, known for its psychoactive effects.

Psilocybin

A naturally occurring psychedelic compound produced by certain species of mushrooms, known for its ability to induce profound changes in consciousness, perception, and mood.