When does "duration" become a less accurate predictor of expected change in security prices?
A)As interest rate shocks increase in size.
B)As interest rate shocks decrease in size.
C)When maturity distributions of an FI's assets and liabilities are considered.
D)As inflation decreases.

Question

Quizplus · Accepted Answer

Duration becomes a less accurate predictor of expected change in security prices as interest rate shocks increase in size because duration assumes small and parallel shifts in the yield curve. Large shocks can lead to non-linear price changes that duration does not accurately capture.

When Does "Duration" Become a Less Accurate Predictor of Expected