Question

The duration of a portfolio composed of the assets x and y , that have durations 1 and 5 years respectively,
a) can be greater than 5 years
b) can be lower than 1 year
c) is always between 1 and 5 years
d) can be lower than 1 year, not greater than 5 years

Answer 1

The duration of the portfolio, consisting of assets x and y, which have durations of 1 and 5 years respectively, can be less than 1 year, not more than 5 years because the investor's horizon (the time for which he invests and for which measures profitability) equals the time to maturity tools. Answer is d) can be lower than 1 year, not greater than 5 years.