Which of the following statements about duration is correct? a bond's:
A) effective duration is a measure of yield duration.
B) modified duration is a measure of curve duration.
C) modified duration cannot be larger than its Macaulay duration (assuming a positive yield-to-maturity).

Question

Quizplus · Accepted Answer

Modified duration, which adjusts Macaulay duration for the interest rate, cannot exceed Macaulay duration when the yield-to-maturity is positive. This is because modified duration accounts for the change in interest rates, effectively providing a more accurate measure of interest rate risk.

Which of the Following Statements About Duration Is Correct? a Bond's