Duration of a pure discount bond:
A)is equal to its half-life.
B)is less than a zero coupon bond.
C)is equal to the liabilities hedged.
D)is equal to its maturity.
E)None of the above.

Question

Quizplus · Accepted Answer

The duration of a pure discount bond is equal to its maturity, as there are no coupon payments to be taken into account. So, D is the correct choice. A is incorrect because half-life is a measure of the time taken for the market value to fall by half, which is not related to duration. B is incorrect because zero-coupon bond and pure discount bond are the same. And C is incorrect because the duration of a bond is a measure of its sensitivity to changes in interest rates, and it is not related to liabilities hedged.

Duration of a Pure Discount Bond