7. A. Define duration and explain how duration is used in the management of a portfolio of financial securities. B. Why is duration a better measurement of interest rate risk than the time it takes to reduce the principal balance on a loan by 50%? C. How does maturity and yield affect the sensitivity of a financial security to changes in interest rates

7. A. Define duration and explain how duration is used in the management of a portfolio of financial securities. B. Why is duration a better measurement of interest rate risk than the time it takes to reduce the principal balance on a loan by 50%? C. How does maturity and yield affect the sensitivity of a financial security to changes in interest rates

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 8QE

See similar textbooks

Similar questions

Duration is important in understanding a fixed income portfolio because A. it is used in the capital asset pricing model B. it measures the interest rate sensitivity of a bonds value C. It measures the correlation with a bank's stock price D. It causes contagion
The APR is a. the average annual percentage cost paid on deposits b. the average rate paid on deposits c. the average rate paid for credit d. the average annual percentage cost paid for credit Decreasing the amount of liquid assets held for the purpose of meeting loan demands and deposit withdrawals and increasing the usage of deposit and nondeposit sources of funds paying market rates of interest is known as: a. leverage adjustment b. liability management c. liquidity management d. liquidity adjustment Times interest earned is a measure of the a.gross profit compared to annual interest payments b.net earnings after taxes compared annual interest payments c.operational earnings of the firm (EBIT) compared to annual interest payments d.net earnings before taxes compared to annual interest payments A Bankers’ Acceptance is most commonly used in connection with a. financing inventories b. financing securities c. financing trust accounts d. financing foreign trade
Among the factors considered in the quantitative models of default risk: a. Business cycle b. Reputation c. Collateral d. Leverage
If the credit quality of the issuer falls sharply, what is your main concern? a.The share price. b.The volatility of the underlying c.The default risk. d.A rise in risk free interest rates Give typing answer with explanation and conclusion
What is duration gap model? Explain the concept of duration. How duration measure can be used to protect a financial intermediary against interest rate risk?
Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets
financial risk management fill in the blacks with correct answer. Interest rate risk is the potential for investment (....loss/gain..........). that result from a change in the interest rates. If interest rate (rise/fall)..., for instance, the value of the bond or fixed-income instrument will decline.
3.Explain the difference between the following concepts in finance: a) Capital market & money market b)Debt finance& Equity finance c)Systematic risk & unsystematic risk d)Coupon rate of security and Its yield to maturity
1. What are some examples of financial instruments that can be used for hedging interest rate risks, and how would they work?2. What are caps, floors, and collars and how do they operate?
1. What are some examples of financial instruments that can be used for hedging interest rate risks, and how would they work?
which one is correct please confirm? QUESTION 38 The term structure of interest rates is the pattern of interest rate yields for securities that differ only in ____. a. the yield to maturity b. liquidity premiums c. the length of time to maturity d. default risk
The elasticity of the change of the price of debt toward the change in interest rate is the absolute value of (and then divided by(1+r)) a. Convexity b. Maturity c. Duration d. Immunization