Yield curve risk is the exposure to changes in the shape of yield curve that impact our investments I treasury securities, non callable corporate and mortgage securities. since the sum of all key rate durations Approximate portfolio duration, the portfolios effective duration provides an effective measure of our yield curve risk.
this statement is mostly correct with regard to the use of key rate duration?
a. Yes
b. No bcuz yield curve risk for securities with bullet maturities cannot be properly measyred by effective duration
c. No bcuz Ina twist of the shape of the yield curve, callable bond prices will be more sensitive than bullet bond prices.
answer is c.
why not b? Effective duration measure small parallel shift in yield curve and therefore cannot measure yield curve risk. To me b isn’t a wrong answer??