(I)The average lifetime of a debt security's stream of payments is called duration.
(II)The duration of a portfolio is the weighted average of the durations of the individual securities,with the weights reflecting the proportion of the portfolio invested in each.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.

Question

Quizplus · Accepted Answer

Both statements are true. Duration is a measure of the average life of a debt security's stream of payments, taking into account the timing of the payments and the present value of the payments. The duration of a portfolio is the weighted average of the durations of the individual securities, with the weights reflecting the proportion of the portfolio invested in each. This is an important metric for managing interest rate risk in fixed income portfolios.

(I)The Average Lifetime of a Debt Security's Stream of Payments