Which of the following cause a coupon security's duration to fall?
A) A shorter maturity
B) Higher interest rates
C) Higher bond prices
D) Both a and b

Question

Quizplus · Accepted Answer

A shorter maturity reduces the time until cash flows are received, decreasing duration. Higher interest rates decrease a bond's price and its duration because the present value of future cash flows is discounted more heavily, leading to a quicker return of the principal. Higher bond prices, however, are associated with lower interest rates, which would increase duration, not decrease it.

Which of the Following Cause a Coupon Security's Duration to Fall