SIE Exam Question 197: Answer and Explanation

Question: 197

What is the measure of bond price volatility that captures both price and reinvestment risks indicating how a bond will react to different interest rate environments?

• A. Yield
• B. Duration
• C. Immunization
• D. Beta

Correct Answer: B

Explanation:

Duration is the measure of bond price volatility that captures both price and reinvestment risks, indicating how a bond will react to different interest rate environments. Yield refers to the return on investment from a security. Immunization is a strategy used to mitigate risk and minimize the negative impact of changing interest rates. Beta is a calculated quantity that describes the volatility of a security by comparing its performance to that of the rest of the market.