Consider a cash flow of payments C1,C2,...,Cn at the end of years t1,t2,...,tn. Suppose the nominal interest rate is r=0.04 and that interest is compounded monthly. Select all the correct statements. a) If all the above cash payments are the same then the effective duration is equal to the duration. b) The convexity is the same as the duration squared in this case. c) The duration and the effective duration are the same for this example. d) The effective duration is equal to 300/301 times the duration in this case. e) The effective duration is equal to 25/26 times the duration in this case.
Consider a cash flow of payments C1,C2,...,Cn at the end of years t1,t2,...,tn. Suppose the nominal interest rate is r=0.04 and that interest is compounded monthly. Select all the correct statements. a) If all the above cash payments are the same then the effective duration is equal to the duration. b) The convexity is the same as the duration squared in this case. c) The duration and the effective duration are the same for this example. d) The effective duration is equal to 300/301 times the duration in this case. e) The effective duration is equal to 25/26 times the duration in this case.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider a cash flow of payments C1,C2,...,Cn at the end of years t1,t2,...,tn. Suppose the nominal interest rate is r=0.04 and that interest is compounded monthly. Select all the correct statements.
a) If all the above cash payments are the same then the effective duration is equal to the duration.
b) The convexity is the same as the duration squared in this case.
c) The duration and the effective duration are the same for this example.
d) The effective duration is equal to 300/301 times the duration in this case.
e) The effective duration is equal to 25/26 times the duration in this case.
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