Asked by Matelita Tuitahi on May 29, 2024
Verified
Which of the following is not true?
A) Holding other things constant, the duration of a bond increases with time to maturity.
B) Given time to maturity, the duration of a zero-coupon decreases with yield to maturity.
C) Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower.
D) Duration is a better measure of price sensitivity to interest-rate changes than is time to maturity.
E) All of the options are correct.
Zero-Coupon Bond
A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, offering profit at maturity when the bond is redeemed for its full face value.
Duration
A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates.
Yield To Maturity
The total return anticipated on a bond if it is held until the date it matures, including all payments of principal and interest.
- Familiarize oneself with the core concepts of bond duration and its role in determining the susceptibility to interest-rate risk.
- Evaluate the relationship between yield to maturity, coupon rate, and time to maturity on the duration of bonds.
Verified Answer
AP
azmazazabilla paizonMay 30, 2024
Final Answer :
B
Explanation :
The duration of a zero-coupon bond is equal to its time to maturity, which does not decrease with yield to maturity. This makes option B incorrect as it suggests otherwise.
Learning Objectives
- Familiarize oneself with the core concepts of bond duration and its role in determining the susceptibility to interest-rate risk.
- Evaluate the relationship between yield to maturity, coupon rate, and time to maturity on the duration of bonds.