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Answer: Security A
**Correct Answer**: A **Explanation**: A is correct. We calculate the liquidity duration (LDᵢ) of each security as shown below: | Security (i) | Qᵢ | MDVᵢ | Vᵢ | LDᵢ = Qᵢ/(MDVᵢ*Vᵢ) | |--------------|------------|------|-------------|---------------------| | A | 500,000 | 22% | 522,000 | 4.3539 | | B | 420,000 | 12% | 1,328,000 | 2.6355 | | C | 256,000 | 18% | 710,000 | 2.0031 | | D | 640,000 | 20% | 848,000 | 3.7736 | where: Qᵢ: Number of shares held in security i MDVᵢ: Maximum daily volume allowed for liquidation of security i (expressed as a percentage of average daily volume) Vᵢ: Average daily volume of security i Security A has the highest liquidity duration (4.3539 days) and will take the longest to liquidate. **Key Formula**: Liquidity Duration = Qᵢ / (MDVᵢ × Vᵢ) **Calculation Details**: - Security A: 500,000 / (0.22 × 522,000) = 500,000 / 114,840 = 4.3539 days - Security B: 420,000 / (0.12 × 1,328,000) = 420,000 / 159,360 = 2.6355 days - Security C: 256,000 / (0.18 × 710,000) = 256,000 / 127,800 = 2.0031 days - Security D: 640,000 / (0.20 × 848,000) = 640,000 / 169,600 = 3.7736 days
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A hedge fund manager is concerned about a potential increase in investor redemptions and wants to assess the effects of such an event on the fund's liquidity. The manager asks a junior analyst to estimate the average number of days required to liquidate certain securities in the fund. The analyst uses the information presented below to make this estimation for four securities:
| Security | Market value of security in the fund (CNY million) | Shares of security in the fund | Average daily trading volume of security | Maximum daily volume allowed for liquidation (expressed as a percentage of average daily trading volume) |
|---|---|---|---|---|
| A | 93.00 | 500,000 | 522,000 | 22% |
| B | 173.04 | 420,000 | 1,328,000 | 12% |
| C | 58.88 | 256,000 | 710,000 | 18% |
| D | 28.80 | 640,000 | 848,000 | 20% |
Which of the four securities listed above is expected to take the longest to liquidate?
A
Security A
B
Security B
C
Security C
D
Security D