SIE (Securities Industry Essentials) Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Ace your Securities Industry Essentials (SIE) Exam with Examzify! Our practice exam features flashcards, multiple-choice questions with detailed explanations, and insightful tips to ensure your success.

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

The sensitivity of a debt portfolio to changes in interest rates is measured by:

volatility
duration
liquidity
credit risk

The correct answer is: duration

Duration is the correct measure of sensitivity of a debt portfolio to changes in interest rates because it measures the weighted average time to receive the cash flows from the underlying debt securities. This means that it takes into consideration not only the size of the interest rate changes but also the timing of the cash flows. Options A, C, and D are incorrect because they do not specifically measure interest rate sensitivity. Volatility (option A) measures the degree of fluctuation of the portfolio's return, while liquidity (option C) measures the ease with which the portfolio can be bought or sold. Credit risk (option D) measures the risk of default on the underlying debt securities. While these factors may indirectly affect the sensitivity of a debt portfolio to interest rate changes, they are not specific measures of interest rate sensitivity. Therefore, option B, duration, is the most accurate and relevant measure for this purpose.