Which of the following statements about the limitations of duration analysis is incorrect?
A) It assumes that the term structure of interest rates changes by an equal number of basis points.
B) It assumes that the yield curve is always upward-sloping.
C) Duration needs to be regularly recalculated as interest rates change.
D) The pricing of fixed-interest securities displays convexity.

Question

Quizplus · Accepted Answer

The statement that duration analysis assumes that the yield curve is always upward-sloping is incorrect. Duration analysis assumes a constant shape of the yield curve, but not necessarily its direction (upward-sloping or downward-sloping). The other statements are true limitations of duration analysis.

Which of the Following Statements About the Limitations of Duration