Explanation

Key rate duration analysis assumes that:

• Adjacent key rates affect each other (A and C are correct assumptions)
• Non-adjacent key rates do NOT directly affect each other (D is the exception)

Detailed reasoning:

• Option A (2-year affects 5-year): ✓ Correct assumption - adjacent key rates influence each other
• Option B (7-year affects 20-year): ✓ Correct assumption - adjacent key rates influence each other
• Option C (5-year affects 7-year): ✓ Correct assumption - adjacent key rates influence each other
• Option D (2-year affects 20-year): ✗ INCORRECT assumption - non-adjacent key rates (2-year and 20-year) are too far apart to directly affect each other in key rate duration analysis

Key Rate Duration Concept: Key rate duration measures the sensitivity of a bond's price to changes in specific benchmark rates along the yield curve. The methodology assumes that rate changes primarily affect adjacent key rates, not distant ones. The 2-year and 20-year rates are too far apart on the yield curve to have direct influence on each other in this framework.