Just as the interest rate sensitivity of a single cash flow


1) Which of the following statements is false?

A) Just as the interest rate sensitivity of a single cash flow increases with its maturity, the interest rate sensitivity of a stream of cash flows increases with its duration.

B) A firm's market capitalization is determined by the difference in the market value of its assets and its liabilities.

C) We can measure a firm's sensitivity to interest rates by computing the duration of its balance sheet.

D) By restructuring the balance sheet to increase its duration, we can hedge the firm’s interest rate risk.

2) Which of the following statements is false?

A) Adjusting a portfolio to make its duration neutral is sometimes referred to as immunizing the portfolio, a term that indicates it is being protected against interest rate changes.

B) When the durations of a firm's assets and liabilities are significantly different, the firm has a duration mismatch.

C) The duration of a portfolio of investments is the simple average of the durations of each investment in the portfolio.

D) As interest rates change, the market values of the securities and cash flows in the portfolio change as well, which in turn alters the weights used when computing the duration as the value-weighted average maturity.

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Financial Management: Just as the interest rate sensitivity of a single cash flow
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