- CFA Exams
- CFA Level I Exam
- Study Session 15. Fixed Income (2)
- Reading 46. Understanding Fixed-Income Risk and Return
- Subject 2. Macaulay, Modified and Effective Durations
CFA Practice Question
Which statement is TRUE?
A. Modified duration and effective duration on a traditional (option-free) fixed-rate bond are always equal.
B. A floater will always sell at par on each rate reset date, as its rate is adjusted based on changes in reference rate.
C. Neither of them is true.
Explanation: A. The bond's sensitivity to the benchmark yield curve can differ from its sensitivity to its own yield-to-maturity.
B. The required margin may not remain the same.
User Contributed Comments 1
| User | Comment |
|---|---|
| dbalakos | This is all about credit risk vs interest rate risk |