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A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this portfolio is to changes in interest rates. Which one of the following four metrics is typically used for this purpose?
Suggested Answer: A
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12 comments · newest first
ST
Stacey
1 month ago
I’m leaning towards C) Effective duration. It accounts for changing cash flows too.
CO
Coral
1 month ago
I agree, A) Modified duration is the right choice. It shows how price changes with rates.
JA
Jacklyn
1 month ago
I think it's A) Modified duration. It measures interest rate sensitivity well.
CA
Carissa
2 months ago
Surprised that people still confuse these terms!
CA
Cassandra
2 months ago
I thought Macaulay duration was more common, but I could be wrong.
CI
Ciara
2 months ago
Wait, isn't effective duration also relevant?
KI
Kiley
2 months ago
I agree, modified duration is the go-to for interest rate sensitivity.
HU
Hubert
2 months ago
It's definitely A) Modified duration.
RO
Ronald
2 months ago
I’m leaning towards A) Modified duration too, but I also have a vague memory of effective duration being important for certain types of bonds.
NI
Nicolette
3 months ago
I feel like Macaulay duration was mentioned in our practice questions, but it seems more focused on cash flow timing rather than sensitivity.
LE
Leatha
3 months ago
I remember studying effective duration as well, but I can't recall if it's more relevant for options or just general interest rate risk.
TO
Tom
3 months ago
I think the answer might be A) Modified duration, but I'm not entirely sure if that's the only one used for interest rate sensitivity.