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NEW QUESTION: 1
Ron Travis, CFA, manages a portfolio of long-term and short-term bonds. The portfolio is equally weighted between 1-year, 2-year, 10-year, and 20-year maturities and currently has a portfolio duration equal to 7.0.
Travis is concerned that 1- and 2-year interest rates are going to increase by 100 basis points while 10- and 20-year rates decrease by 100 basis points. If his prediction is correct, Travis' measure of duration will be ineffective at predicting interest rate risk since portfolio duration is only accurate when the:
A. yield curve does not shift.
B. shift in the yield curve is parallel.
C. yield curve steepens.
Answer: B

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