Which of the Following Is True of Immunization Using PV01

question 12

Multiple Choice

Which of the following is true of immunization using PV01?

• A)If the duration of the portfolio matches the duration of a zero-coupon bond with a maturity equal to the horizon date and a price equal to that of the portfolio,then the PV01 of a short position in the portfolio and a long position in the bond is less than zero.
• B)If the duration of the portfolio matches the duration of a zero-coupon bond with a maturity equal to the horizon date and a price equal to that of the portfolio,then the PV01 of a long position in the portfolio and a short position in the bond is zero.
• C)If the duration of the portfolio matches the duration of a zero-coupon bond with a maturity equal to the horizon date and a price greater than that of the portfolio,then the PV01 of a long position in the portfolio and a short position in the bond is zero.
• D)If the duration of the portfolio matches the duration of a zero-coupon bond with a maturity greater than the horizon date and a price equal to that of the portfolio,then the PV01 of a long position in the portfolio and a short position in the bond is zero.

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Definitions:

Dividend Income

Income received from owning shares in a company, which is often taxable at different rates than regular income.

Distribution

The action of sharing something out among a number of recipients, often used in the context of financial assets or dividends.

Transferors Own 80%

A situation in a business transaction where the original owners or transferors retain an 80% ownership interest in the property or entity after the transaction is completed.

Tax-Free

Earnings, income, or transactions that are not subject to tax by the government.