For Large Interest Rate Increases,duration ________ the Fall in Security

question 8

Multiple Choice

For large interest rate increases,duration ________ the fall in security prices,and for large interest rate decreases,duration ________ the rise in security prices.

• A)overpredicts; overpredicts
• B)overpredicts; underpredicts
• C)underpredicts; overpredicts
• D)underpredicts; underpredicts
• E)None of these choices are correct.

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Definitions:

Payback Cutoff

The maximum acceptable period within which an investment should recover its initial costs, used as a criterion for investment decisions.

Net Present Values

The calculation of the present value of an investment's expected cash flows minus the initial investment cost.

Positive NPV

Refers to a net present value calculation indicating that the projected earnings (discounted back to their present value) exceed the initial investment.

Firm Owners

Individuals or entities that hold an ownership interest in a company, representing their claim on the company's assets and earnings.