15) Which of the following statements is false? A) Just as the interest rate sen

ID: 2750283 • Letter: 1

Question

15) Which of the following statements is false?
A) Just as the interest rate sensitivity of a single cash flow increases with its maturity, the

interest rate sensitivity of a stream of cash flows increases with its duration.

B) A firms market capitalization is determined by the difference in the market value of its

assets and its liabilities.

C) We can measure a firms sensitivity to interest rates by computing the duration of its

balance sheet.

D) By restructuring the balance sheet to increase its duration, we can hedge the firms

interest rate risk.

16) Which of the following statements is false?

A) Adjusting a portfolio to make its duration neutral is sometimes referred to as immunizing

the portfolio, a term that indicates it is being protected against interest rate changes.

B) When the durations of a firms assets and liabilities are significantly different, the firm has

a duration mismatch.

C) The duration of a portfolio of investments is the simple average of the durations of each

investment in the portfolio.

D) As interest rates change, the market values of the securities and cash flows in the

portfolio change as well, which in turn alters the weights used when computing the duration as the value-weighted average maturity.

15. Ans is D.

16. Ans is B

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