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A portfolio manager is mapping a fixed-income portfolio into exposures on selected risk factors. The manager is analyzing the comparable mechanics and risk measurement outputs of principal mapping, duration mapping, and cash-flow mapping. Which of the following is correct?
A
Cash-flow mapping groups cash flows into buckets based on their size.
B
Cash-flow mapping uses the average rates in each risk group as a discount factor.
C
Principal mapping incorporates correlations among zero-coupon bonds.
D
Duration mapping replaces the portfolio with a zero-coupon bond with maturity equal to the duration of the portfolio.