Duration measures all of the listed options. It is a measure of a bond's sensitivity to changes in interest rates and calculates the weighted average time that the bondholder will receive cash flows from the bond, taking into account the present value of those cash flows. It reflects the average time the bondholder must wait to receive the cash flows promised by the bond.

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Duration Measures

Question 88

Multiple Choice

Duration measures

A) the effective maturity of a bond.
B) the weighted average of the time until each payment is received, with weights proportional to the present value of the payment.
C) the average maturity of the bond's promised cash flows.
D) all of the options.

Correct Answer: