Which of the following is not a typical property of a discount function $d ( t )$ ?
A) $d ( t )$ is non-decreasing in the maturity $t$ .
B) $d ( t )$ is non-increasing in the maturity $t$ .
C) $d ( t )$ decreases as the zero-coupon rate $z ( t )$ for maturity $t$ increases.
D) $d ( t )$ is independent of compounding convention.

Question

Quizplus · Accepted Answer

BDiscount functions are typically non-increasing as the maturity $t$ increases, reflecting the principle that a dollar in the future is worth less than a dollar today due to the time value of money. This makes option A incorrect because it suggests the opposite. Option B correctly describes a typical property of a discount function. Options C and D are also characteristics of discount functions, with C reflecting the inverse relationship between discount functions and zero-coupon rates, and D indicating that the discount function itself is a pure mathematical construct not affected by the choice of compounding convention.

Which of the Following Is Not a Typical Property of a Discount