Answer: Increase of 6 basis points

## Explanation This is a linear interpolation problem: - **10-year spot rate**: +10 basis points - **20-year spot rate**: +0 basis points (shock decreases linearly to zero) - **14-year spot rate**: We need to find the interpolated value **Calculation:** - Time interval: 10 years to 20 years = 10-year span - Position of 14-year rate: 4 years from 10-year point (14 - 10 = 4) - Total span: 10 years - Fraction: 4/10 = 0.4 - Shock at 14 years: 10 bp × (1 - 0.4) = 10 bp × 0.6 = 6 basis points **Verification:** - At 10 years: 10 bp (100% of shock) - At 14 years: 6 bp (60% of shock remaining) - At 20 years: 0 bp (0% of shock remaining) The shock decreases linearly from 10 bp at 10 years to 0 bp at 20 years, so at 14 years (which is 40% of the way from 10 to 20), the remaining shock is 60% of the original 10 bp, resulting in a 6 bp increase.

Author: LeetQuiz .