) Which of the following statements is false? A) Adjusting a portfolio to make i
ID: 2751752 • Letter: #
Question
) Which of the following statements is false?
A) Adjusting a portfolio to make its duration neutral is sometimes referred to as immunizing the portfolio, a term that indicates it is being protected against interest rate changes.
B) When the durations of a firms assets and liabilities are significantly different, the firm has a duration mismatch.
C) The duration of a portfolio of investments is the simple average of the durations of each investment in the portfolio.
D) As interest rates change, the market values of the securities and cash flows in the portfolio change as well, which in turn alters the weights used when computing the duration as the value-weighted average maturity
Explanation / Answer
A) the statement is absolutely true becasue in order to immunize the portfolio one needs to adjust the portfolio in order to protect the gain and diversified the investment
B) The statemnt is false Because even if the duration of asset and liabilities are different it wont be consider as the duration mismatch
C) The statement is again false because the duration of each investment average is not the duration of the portfoilio like for example the risk of each asset in portfolio is not the total risk of the portfolio
D) The statement is true becuase it all depends on the market segment and changes owing to which will have an impact ont he portfolio
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