When interest rates decline, the duration of a 10-year bond selling at a premium
A) increases.
B) decreases.
C) remains the same.
D) increases at first, then declines.
E) decreases at first, then increases.

Question

Quizplus · Accepted Answer

When interest rates decline, the duration of a bond increases because the present value of future cash flows becomes more sensitive to changes in interest rates. This is particularly true for bonds selling at a premium, as their higher coupon payments become more valuable when rates fall.

When Interest Rates Decline, the Duration of a 10-Year Bond