Answer: I and III

## Explanation **DV01 (Dollar Value of 01)** measures the price change in dollars for a 1 basis point change in yield. The key assumptions are: **I. Changes in the interest rates are small** ✓ - DV01 is based on linear approximation using duration - This approximation is only accurate for small yield changes - For large yield changes, convexity effects become significant **III. Changes to the yield curve are parallel** ✓ - DV01 assumes all yields along the curve move by the same amount - This is necessary for the duration-based calculation to be valid - Non-parallel shifts would require more sophisticated measures **II. The yield curve is flat** ✗ - DV01 does not require a flat yield curve - It can be calculated for any yield curve shape **IV. The yield curve is downward sloping** ✗ - DV01 works for any yield curve shape (upward, downward, flat, humped) - The slope of the curve doesn't affect the DV01 calculation **Therefore, only assumptions I and III are correct.**

Author: LeetQuiz Editorial Team