All else equal,when interest rates ________,the duration of a coupon bond ________.
A)rise;falls
B)rise;increases
C)falls;falls
D)falls;does not change

Question

Quizplus · Accepted Answer

When interest rates rise, the duration of a coupon bond falls because the present value of the bond's future cash flows (both the periodic coupon payments and the final principal repayment) is discounted at a higher rate, making the bond's price more sensitive to immediate cash flows and less sensitive to future cash flows. This results in a shorter duration, which measures the sensitivity of a bond's price to changes in interest rates.

All Else Equal,when Interest Rates ________,The Duration of a Coupon