Asked by Landon Womack on Jul 15, 2024
Verified
Duration is a useful measure of interest rate risk because it incorporates a bond's default risk.
Duration
A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, expressed in years.
Interest Rate Risk
The potential for investment losses due to fluctuations in interest rates, affecting the value of interest-bearing assets.
Default Risk
The possibility that a borrower will fail to meet the obligations of a debt agreement.
- Absorb the information regarding the influencers on bond interest rate risk, focusing on the rate of coupon, length to maturity, and the distinct properties of bonds.
Verified Answer
AF
Araseli FonsecaJul 20, 2024
Final Answer :
False
Explanation :
Duration measures a bond's sensitivity to changes in interest rates, not its default risk. Default risk is assessed separately, often through credit ratings.
Learning Objectives
- Absorb the information regarding the influencers on bond interest rate risk, focusing on the rate of coupon, length to maturity, and the distinct properties of bonds.
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