Effective duration considers a security's embedded options.

Name: Effective duration considers a security's embedded options.
Brand: Quizplus
Rating: 4.9 (40 reviews)

Question

Quizplus · Accepted Answer

Effective duration measures the sensitivity of a security's price to changes in interest rates, taking into account the possibility of early repayment or call provisions. These embedded options can affect the timing and amount of cash flows, which in turn affect the security's price and duration. Therefore, effective duration considers a security's embedded options.

Effective Duration Considers a Security's Embedded Options