Assuming no change in interest rates, the duration of a coupon bond
A) stays constant.
B) declines more slowly than the term to maturity.
C) declines more quickly than the term to maturity
D) increases at a slower rate than the term to maturity.
E) changes in line with the term to maturity.

Question

Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates and represents the weighted average time to receive the bond's cash flows. As time passes and a bond gets closer to its maturity, its duration decreases because there's less time for interest rates to impact the bond's cash flows. However, this decrease in duration happens more slowly than the decrease in the bond's term to maturity because the payments are spread out over time, not all received at maturity.

Assuming No Change in Interest Rates, the Duration of a Coupon