Use the graph to answer questions 9-11. Normal 1 No Spac.. He arag Referring to

Question

Use the graph to answer questions 9-11. Normal 1 No Spac.. He arag Referring to the graph in the appendix answer questions 9-11 Line A represents a. Effective duration b. Modified duration C. MacAulay duration d. Convexity e. Bond price 10. Curve B represents a. Effective duration b. Modified duration c MacAulay duration d. Convexity e. Bond price 11. Area C represents a. Effective duration b. Modified duration c. MacAulay duration d. Convexity e. Bond price 12. Coupon reinvestment riss dominates orcer a. Inves bi Investmen

Explanation / Answer

Soln : 9) Modified duration is considering that the relationship between price and interest rate is linear

So, Line A reprsents the Modified duration

10) In actual it is not straight line but the curve, which is calculated by using the convexity

So, Curve B represents convexity.

11) Shaded area is the difference in duration estimate and actual movement of price, we can call it as effective duration.

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