Answer-first summary for fast verification
Answer: Increase of 6 basis points
## Explanation The shock decreases linearly from 10 basis points at 10 years to 0 basis points at 20 years. This is a linear decrease over a 10-year period (from year 10 to year 20). At year 14, which is 4 years after the 10-year point: - Total time span: 20 - 10 = 10 years - Time elapsed at year 14: 14 - 10 = 4 years - Decrease factor: 4/10 = 0.4 - Remaining shock: 10 bp × (1 - 0.4) = 10 bp × 0.6 = 6 bp Therefore, the 14-year spot rate increases by 6 basis points.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
Suppose the 10-year spot rate has increased by 10 basis points and this shock decreases linearly to zero for the 20-year spot rate. What is the effect of this shock on the 14-year spot rate?
A
Increase of 0 basis points
B
Increase of 4 basis points
C
Increase of 6 basis points
D
Increase of 10 basis points