Why is modified duration an inappropriate measure for a high-coupon callable bond?
What will be an ideal response?
Money managers want to know the price sensitivity of a bond when interest rates change. Modified duration is a measure of the sensitivity of a bond's price to interest-rate changes, assuming that the expected cash flow does not change with interest rates. Consequently, modified duration may not be an appropriate measure for bonds with embedded options because the expected cash flows change as interest rates change.
For example, when interest rates fall, the expected cash flow for a callable bond may change. In the case of a putable bond, a rise in interest rates may change the expected cash flow.
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Which of the following yields a systematic sample?
A) A random sample of 15 students is selected from a class without replacement. B) All students in a class are grouped according to their gender. A random sample of 8 is selected from the males and a separate random sample of 7 is drawn from the females. C) The best 15 students, according to the opinion of the instructor, in a class are selected. D) All students in a class are divided into groups of 15. One student is randomly chosen from the 1st group, the remaining observations are every 15th student thereafter.