Key Rate Duration

rates, amount, correct, already, understand

I don't understand the answer. Any help would be appreciated. Thanks.

What adjustment must be made to the key rate durations to measure the risk of a steepening of an already upward sloping yield curve?
A) Decrease the key rates at the short end of the yield curve.
B) Increase all key rates by the same amount.
C) Increase the key rates at the short end of the yield curve.

The correct answer was A) Decrease the key rates at the short end of the yield curve.

Decreasing the key rates at the short end of the yield curve makes an upward sloping yield curve steeper. Performing the corresponding change in portfolio value will determine the risk of a steepening yield curve.

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发表于 2011-7-11 19:44 | 只看该作者

Well if you have a curve thats upward sloping lets say from 2 to 3 to 6 to 8, and you want to make it steeper, you can either decrease the rates at the start (short end), or increase the rates at the long end. Make sense

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