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:
Therefore, the 14-year spot rate increases by 6 basis points.
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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
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