A relatively high numerical value of the duration of an asset means which of the following t?
A)Low sensitivity of an asset price to interest rate shocks.
B)High interest inelasticity of a bond.
C)High sensitivity of an asset price to interest rate shocks.
D)Lack of sensitivity of an asset price to interest rate shocks.
E)Smaller capital loss for a given change in interest rates.

Question

Quizplus · Accepted Answer

A high numerical value of duration implies that the asset's price is highly sensitive to interest rate changes. Duration measures the percentage change in price for a given change in interest rates. Hence, a higher duration asset will experience larger changes in price due to interest rate fluctuations, making it more sensitive to interest rate shocks.

A Relatively High Numerical Value of the Duration of an Asset