About duration and modified duration

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Reference no: EM131994462

1. Which of the following is true about duration and modified duration?

I. The Macaulay duration calculates the weighted average time before a bondholder would receive the bond's cash flows.

II. Modified duration measures price sensitivity of a bond to changes in YTM by adjusting duration with a factor based on current yield.

III. The value of duration and modified duration are usually very close, but duration is almost always a larger number.A.Duration is important to banks when they try to assess the risk of bond portfolios on their balance sheet.

A. Only I and II are true. B. All but IV are true. C. Only II and III are true. D. All are true. E. What's duration?

2. Which of the following statements is true about commercial paper??

a. ?Commercial paper always matures in two months.

b. ?Commercial paper is issued at a discount.

c. ?Commercial paper is issued in denominations of $100.

d. ?Commercial paper pays annual interest.

e. ?Commercial paper is issued by bankrupt firms.

Reference no: EM131994462

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