Question

(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.

Answer 1

The correct answer is C: Both are true

Step-by-step explanation:

Duration is simply defined as the average lifetime of a debt security stream of payment and the duration of a portfolio is the weighted average of the duration of the individual securities, with the weights reflecting the proportion of the portfolio invested in each.