Asked by Matthew Castanon on May 18, 2024
Verified
Duration measures
A) weighted-average time until a bond's half-life.
B) weighted-average time until cash flow payment.
C) the time required to make excessive profit from the investment.
D) weighted-average time until a bond's half-life and the time required to make excessive profit from the investment.
E) weighted-average time until cash flow payment and the time required to make excessive profit from the investment.
Duration
A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, frequently used to assess interest rate risk.
Weighted-Average Time
A calculation that determines the mean time until cash flows are received, adjusted for the relative size of each cash flow, often used in bonds.
Cash Flow Payment
Payments of money, particularly from a company or government to an individual, which can arise from operations, financing, or investments.
- Comprehend the fundamental principles of bond duration and its importance in assessing interest-rate risk.
Verified Answer
SN
sibusiso ndeluMay 24, 2024
Final Answer :
B
Explanation :
Duration measures the weighted-average time until cash flow payment. It is a concept used in finance to assess the sensitivity of a bond's price to changes in interest rates, by calculating the average time it takes to receive the bond's cash flows.
Learning Objectives
- Comprehend the fundamental principles of bond duration and its importance in assessing interest-rate risk.