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What may be used to determine which of two bond portfolios is more sensitive to interest rate changes?
Suggested Answer: D
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The sensitivity of a bond or bond portfolio to interest rate changes is measured by duration, also called time-weighted maturity.
Duration represents the approximate % change in bond price for a 1% change in interest rates.
Higher duration = greater sensitivity to interest rate movements.
Therefore, the correct measure is Time-weighted maturity (Duration).
24 comments · newest first
TO
Toi
2 days ago
Still, Beta is widely accepted for this purpose.
AL
Alonso
7 days ago
D) Time-weighted maturity is also valid. It reflects bond timing.
CL
Clarence
12 days ago
I feel A) Beta is the best choice. Clear correlation with interest rates.
RO
Roosevelt
17 days ago
True, but Beta is more direct for sensitivity.
JU
Justine
23 days ago
But what about D) Time-weighted maturity? It relates to duration.
MA
Marla
28 days ago
I agree, Beta shows risk related to interest rates.
TO
Toi
1 month ago
I think it's A) Beta. It measures sensitivity well.
MA
Martin
1 month ago
Same here! But I think D) is the best choice.
JU
Julio
1 month ago
I feel unsure about the exam.
CA
Cathern
2 months ago
D) is definitely more relevant here.
GW
Gwenn
2 months ago
Right, bonds need a different approach.
MA
Martin
2 months ago
True, but Beta is more for stocks, not bonds.
JU
Julio
2 months ago
But what about A) Beta? It measures risk relative to the market.
CA
Cathern
2 months ago
I agree! It shows how long the bonds are exposed to interest rates.
GW
Gwenn
2 months ago
I think it's D) Time-weighted maturity.
KA
Kanisha
3 months ago
Wait, is time-weighted maturity really the best measure? Sounds odd!
RI
Ria
3 months ago
Agreed, time-weighted maturity makes the most sense here.
DA
Danilo
3 months ago
Not sure about that, I feel like variance plays a role too.
GA
Gaynell
3 months ago
I thought it was A) Beta?
ER
Ernest
3 months ago
Definitely D) Time-weighted maturity!
TO
Tommy
4 months ago
I’m leaning towards time-weighted maturity since it relates to how long the bonds are held, but I could be mixing it up with another concept we studied.
LI
Linette
5 months ago
Time-weighted maturity sounds familiar for measuring sensitivity, but I feel like there might be a more direct measure we covered.
VO
Von
5 months ago
I remember practicing a question about bond portfolios, and I think beta was mentioned in that context. But I’m not confident it applies here.
AN
Annamae
5 months ago
I think we discussed something about interest rate sensitivity in class, but I'm not entirely sure if it's related to time-weighted maturity or something else.