Chartered Financial Analyst Level 1
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Which of the following securities is most appropriately measured for interest rate risk using modified duration?
Which of the following securities is most appropriately measured for interest rate risk using modified duration?
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A
A callable bond, as yield duration statistics like modified duration are not applicable due to the undefined internal rate of return. Effective duration is the suitable measure.
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B
A US Treasury bond, as modified duration is suitable for non-complex bonds like Treasuries, whereas effective duration is necessary for bonds with embedded options.
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