Chapter 9

Question 1

what happens to duration when you have a refinance risk and rates go up

Answer 1

NII goes up and duration goes down (takes less time to break even, collecting more income)

Question 2

what happens to duration when you have a refinance risk and rates go down

Answer 2

NII goes down and duration goes up (takes longer to break even, collecting less income)

Question 3

what happens to duration when you have a reinvestment risk and rates go up

Answer 3

NII goes down and duration goes up (pays more interest, takes longer to break even)

Question 4

what happens when you have a reinvestment risk and rates go down

Answer 4

NII goes up and duration goes down (pays less interest, takes less to break even)