A relatively high numerical value of the duration of an asset means which of the following?
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.

Question

Quizplus · Accepted Answer

A higher numerical value of duration indicates that the asset's price is more sensitive to interest rate changes. This means that a small change in interest rates can have a significant impact on the price of the asset. So, option C is the correct choice as it reflects the high sensitivity of an asset price to interest rate shocks. Option A is incorrect because a low numerical value of duration would mean a lesser impact of interest rate shocks. Option B is incorrect as it suggests interest rate inelasticity, which is the opposite of what duration measures. Option D is also incorrect as it contradicts the definition of duration.

A Relatively High Numerical Value of the Duration of an Asset