Asked by Nayely Quintero on May 10, 2024
Verified
Ceteris paribus, the duration of a bond is negatively correlated with the bond's
A) time to maturity.
B) coupon rate.
C) yield to maturity.
D) coupon rate and yield to maturity.
E) None of the options are correct.
Bond Duration
A measure of the sensitivity of a bond's price to changes in interest rates, representing the weighted average time until a bond's cash flows are received.
Coupon Rate
The annual interest rate paid on a bond, expressed as a percentage of the face value.
Yield To Maturity
The total return anticipated on a bond if it is held until the maturity date, taking into account both the interest payments and capital gains or losses.
- Ascertain the variables impacting bond longevity and their susceptibility to price changes.
- Investigate the effects of yield to maturity, coupon rate, and time until maturity on the duration of a bond.
Verified Answer
CT
Consuelo TaverasMay 13, 2024
Final Answer :
D
Explanation :
The duration of a bond, which measures its sensitivity to changes in interest rates, is negatively correlated with both the bond's coupon rate and its yield to maturity. A higher coupon rate or yield to maturity will generally lead to a shorter duration, meaning the bond's price is less sensitive to interest rate changes.
Learning Objectives
- Ascertain the variables impacting bond longevity and their susceptibility to price changes.
- Investigate the effects of yield to maturity, coupon rate, and time until maturity on the duration of a bond.