Duration
A) assesses the time element of bonds in terms of both coupon and term to maturity.
B) allows structuring a portfolio to avoid interest-rate risk.
C) is a direct comparison between bond issues with different levels of risk.
D) assesses the time element of bonds in terms of both coupon and term to maturity and allows structuring a portfolio to avoid interest-rate risk.
E) assesses the time element of bonds in terms of both coupon and term to maturity and is a direct comparison between bond issues with different levels of risk.

Question

Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates, incorporating both the time to maturity and the coupon payments. It can be used to structure a portfolio in such a way as to minimize interest rate risk, by matching the duration of assets and liabilities. It does not directly compare different levels of risk between bond issues; rather, it is a measure of interest rate risk.