Question
Choose the best multiple choice: When considering both their assets and their liabilities many institutions try to immunize their portfolios against interest rate risk. Which
Choose the best multiple choice:
When considering both their assets and their liabilities many institutions try to immunize their portfolios against interest rate risk. Which of the following is a true statement:
a) When an institution matches the durations of its assets and liabilities, price risk is eliminated but reinvestment risk continues to be a potential problem.
b) When an institution matches the durations of its assets and liabilities, reinvestment risk is eliminated but price risk continues to be a potential problem.
c) Assuming interest rates do not change, if an institution begins by strictly matching the durations of their assets and liabilities they wont need to rebalance later, even if the durations of their assets and liabilities change over time at different rates.
d) When significant market interest rates changes occur, convexity differences between an institutions asset and liability positions can create a need to rebalance a previously immunized portfolio.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started