9-62 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.
E)When the leverage adjustment is incorporated.

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 a linear relationship between price and yield changes, which becomes less accurate for larger interest rate changes.

9-62 When Does "Duration" Become a Less Accurate Predictor of Expected