The duration of a bond is the weighted average maturity of the future cash flows expected to be received on a bond.Which of the following statements concerning duration is true?
A)The longer the time to maturity,the greater the duration.
B)The higher the coupon rate,the lower the duration.
C)The shorter the duration,the greater the price volatility.
D)All of the options are true.
E)None of the options is true.

Question

Quizplus · Accepted Answer

Duration is a measure of bond price sensitivity to interest rate changes. It is calculated as the weighted average of the time to receive each cash flow, where the weights are the present value of those cash flows. Since longer maturity bonds have cash flows that are further out in the future, they have a higher duration. The higher coupon rate will have a shorter duration, but this statement is false. Finally, the shorter the duration, the lower the price volatility, so statement C is also false. Thus, only statement A is true.

The Duration of a Bond Is the Weighted Average Maturity