A coupon bond has 10-years to maturity and a YTM of 8%. If the YTM instantaneously increases to 9%, what happens to the bond's price and duration?
A) The price decreases and the duration increases.
B) The price increases and the duration decreases.
C) The price decreases and the duration decreases.
D) The price decreases and the duration stays the same.

Question

Quizplus · Accepted Answer

When the YTM increases, the bond's price decreases because the present value of future cash flows is lower. The duration also decreases because the bond's sensitivity to interest rate changes is reduced as the bond's price falls.

A Coupon Bond Has 10-Years to Maturity and a YTM