Question #14
Reading: Reading 37 Measuring and Managing Market Risk
PDF File: Reading 37 Measuring and Managing Market Risk.pdf
Page: 6
Status: Correct
Correct Answer: B
Question
A fixed income portfolio manager utilizes duration as a risk measure for the portfolio. The portfolio manager is most likely:
Answer Choices:
A. using scenario analysis
B. using sensitivity analysis
C. using partial analysis
Explanation
Sensitivity analysis evaluates changes in portfolio value due to changes in underlying risk
factors. Duration is a risk-factor for a fixed income portfolio capturing the interest rate risk
of the portfolio. As such, impact of changing interest rates would be captured by duration
of the portfolio and such an analysis is sensitivity analysis.