Which of the following statements about duration is incorrect?
A) Duration is superior to time to maturity as a measure of price sensitivity to interest rate changes.
B) Holding other things constant, the duration of a bond increases with time to maturity.
C) Given time to maturity and yield to maturity, the duration of a bond is higher when the coupon rate is lower.
D) Given time to maturity, the duration of a zero coupon bond decreases with yield to maturity.

Question

Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates, and for a zero-coupon bond, duration is equal to its time to maturity. Therefore, the duration of a zero-coupon bond does not decrease with yield to maturity; it remains constant because there are no intermediate cash flows, and the bond's entire value is realized at maturity.

Which of the Following Statements About Duration Is Incorrect