Interest rate sensitivity of single cash flow increases

Assignment Help Financial Management

Reference no: EM13940540

1) Which of the following statements is false?

A) Just as the interest rate sensitivity of a single cash flow increases with its maturity, the interest rate sensitivity of a stream of cash flows increases with its duration.

B) A firm's market capitalization is determined by the difference in the market value of its assets and its liabilities.

C) We can measure a firm's sensitivity to interest rates by computing the duration of its balance sheet.

D) By restructuring the balance sheet to increase its duration, we can hedge the firm’s interest rate risk.

2) Which of the following statements is false?

A) Adjusting a portfolio to make its duration neutral is sometimes referred to as immunizing the portfolio, a term that indicates it is being protected against interest rate changes.

B) When the durations of a firm's assets and liabilities are significantly different, the firm has a duration mismatch.

C) The duration of a portfolio of investments is the simple average of the durations of each investment in the portfolio.

D) As interest rates change, the market values of the securities and cash flows in the portfolio change as well, which in turn alters the weights used when computing the duration as the value-weighted average maturity.

Reference no: EM13940540

Questions Cloud

Java application that prompts a user for a full name address : Write a Java application that prompts a user for a full name and street address and constructs an ID from the user's initials and numeric part of the address. For example, the user William Henry Harrison who lives at 34 elm would have an ID of WHH..

Determine stress in sections and overall change in length : A duralumin tie bar of diameter 40 mm and length 600 mm carries a tensile load of 180 kN. If the bar contains a 30 mm diameter hole along 100 mm of its length, determine the stress in the two sections and the overall change in length.

Indicate why the market structure was decided upon : Your selected organization must be submitted for instructor approval. Identify the market structure in which this organization competes. Clearly indicate why the market structure was decided upon and how this market structure differentiates from the ..

Creat a class named vehicle that acts as a superclass : Write a UseVehicle class to instantiaate the two Vehicle objects and print the objects values. Save as UseVehicle.java

Interest rate sensitivity of single cash flow increases : Just as the interest rate sensitivity of a single cash flow increases with its maturity, the interest rate sensitivity of a stream of cash flows increases with its duration. A firm's market capitalization is determined by the difference in the market..

What is wilson profit margin and debt ratio : What is Wilson's profit margin and debt ratio?

Marketing consultant for new moxy budget hotel chain : As a marketing consultant for new Moxy budget hotel chain, you have been asked to complete a strategic marketing audit to analyse both internal and external factors that are impacting on the organisations ability to develop internationally.

Explain significance of coefficient of determination measure : Explain the significance of the coefficient of determination measures for the cost formulas. Did these measures have a bearing on your answer in Requirement 1? Should they have a bearing? Why?

Implementing line equations in a program : Implement a class Line with four constructors, corresponding to the four cases above.

User Account

All Pages