A six-year maturity bond has a five-year duration. Over the next year maturity will decline by one year and duration will decline by
A)less than one year.
B)more than one year.
C)one year.
D)N years.
E)N/(N − 1)years.

Question

Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates and typically decreases as the bond approaches maturity. Since the bond's duration is already less than its maturity, it will decrease by less than one year as it gets closer to its maturity date.

A Six-Year Maturity Bond Has a Five-Year Duration