Assume a Portfolio Manager Created a Short Interest Rate Hedge

question 57

Multiple Choice

Assume a portfolio manager created a short interest rate hedge for his/her portfolio. Given this hedge, the manager is

• A) essentially eliminating both the downside risk and the upside potential.
• B) eliminating the downside risk without hampering the upside potential.
• C) partially diminishing the downside risk without impairing the upside potential.
• D) eliminating the downside risk and increasing the upside potential.

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Definitions:

Propinquity Effect

The tendency for people to form close relationships with those who are geographically close to them.

Attracted

A feeling or response of being drawn towards someone or something due to their qualities, appearance, or characteristics.

Evolutionary History

The record of biological changes and adaptation in organisms over time, shaping their genetic and phenotypic characteristics.

Classical Conditioning

A conditioning method where the continuous association of two stimuli results in a reaction, which initially is caused by the second stimulus, to be later initiated by the first stimulus by itself.