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QUESTION 24 Consider the following statements: I. Macaulay duration indicates the period of time when reinvestment risk and...

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Finance

QUESTION 24

  1. Consider the following statements:

I. Macaulay duration indicates the period of time whenreinvestment risk and price risk offset each other.

II. Modified Duration = Macaulay Duration × (1 + r).

a.

Both statements are true.

b.

One statement is true.

c.

None of the statements is true.

Answer & Explanation Solved by verified expert
4.4 Ratings (681 Votes)
We will analyze both statements individually 1 Price of a bond is subject to interest rate risk This means that change in market interest risk will increase or decrease the price of the bond On the other hand change in market interest rate results change in reinvestment rate of coupons Thus when market interest    See Answer
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Transcribed Image Text

QUESTION 24Consider the following statements:I. Macaulay duration indicates the period of time whenreinvestment risk and price risk offset each other.II. Modified Duration = Macaulay Duration × (1 + r).a.Both statements are true.b.One statement is true.c.None of the statements is true.

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