The measure that takes into account the timing and present values of cash flows associated with financial assets or liabilities is:
A) convexity.
B) duration.
C) novation.
D) ARBL.

Question

Quizplus · Accepted Answer

Duration is a measure of the time-weighted present value of future cash flows associated with a financial asset or liability. It takes into account the timing and magnitude of cash flows and provides a useful tool for managing interest rate risk. Convexity is a measure of the curvature of the relationship between bond prices and yields and provides a further refinement to duration. Novation refers to the substitution of a new party for an old one in a contract, while ARBL is not a recognized financial term.

The Measure That Takes into Account the Timing and Present