According to the duration concept
A) only coupon payments matter.
B) only maturity value matters.
C) the coupon payments made prior to maturity make the effective maturity of the bond greater than its actual time to maturity.
D) the coupon payments made prior to maturity make the effective maturity of the bond less than its actual time to maturity.
E) discount rates don't matter.

Question

Quizplus · Accepted Answer

The duration concept takes into consideration both the time to maturity and the timing of coupon payments. The coupon payments made prior to maturity reduce the effective maturity of the bond, hence the effective duration is less than the actual time to maturity. This means that changes in interest rates will have a lesser impact on the price of the bond than if it had the same time to maturity but no coupon payments. Hence, the best choice is D.

According to the Duration Concept