The interest rate sensitivity of a single cash flow ________ with its maturity; the interest rate sensitivity of a stream of cash flows ________ with its duration.
A) decreases; increases
B) increases; decreases
C) decreases; decreases
D) increases; increases

Question

Quizplus · Accepted Answer

The interest rate sensitivity of a single cash flow increases with its maturity because longer maturities mean more time for interest rate changes to impact the present value of that cash flow. Similarly, the interest rate sensitivity of a stream of cash flows increases with its duration, as duration measures the weighted average time until cash flows are received and reflects the sensitivity of the stream's value to interest rate changes.

The Interest Rate Sensitivity of a Single Cash Flow ________