I am quite confused about the question Volume 4 Page 151. 23.
Quote:
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The answer is C.
Could anyone give me a hand on this question, please?
i think this is a typo / errata.
My 2014 book tells me answer is A) Flattening of the yield curve.
Benchmark Duration = 5.6, liability Duration =10.2
Flattening of yield curve => Rise of short term rates, fall in longer term rates.
So liability would rise faster than the benchmark - causing concern.
Yes, it is a typo. But the liability duration is 10.2, and the benchmark duration is 5.6.
So if flattening of yield curve, the portfolio will outperform the benchmark and under perform the liability, right?
Does it need to analyze the bonds with different maturity in the portfolio?
What will be the impact if large parallel shift up in the yield curve?