Which of the following statements are true? I) Holding other things constant, the duration of a bond decreases with time to maturity.
II) Given time to maturity, the duration of a zero-coupon increases with yield to maturity.
III).Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower.
IV) Duration is a better measure of price sensitivity to interest-rate changes than is time to maturity.

Question

Quizplus · Accepted Answer

III is true because a lower coupon rate means the bond's cash flows are more back-loaded (i.e., the bulk of the payment comes at maturity), making the bond's price more sensitive to interest rate changes, hence a higher duration. IV is true because duration accounts for the time value of money and cash flow distribution, making it a more accurate measure of a bond's interest rate sensitivity than simply looking at its time to maturity.

Which of the Following Statements Are True? I) Holding Other