The duration of a bond will increase as the time to maturity ________ and/or as the YTM on the bond ________.

Question

Quizplus · Accepted Answer

The time to maturity and YTM have an opposite relationship with the duration of a bond. When the time to maturity increases, the duration of the bond also increases because the bond has more time to receive its fixed interest payments. On the other hand, when the YTM on the bond decreases, the duration of the bond also increases because the bond is more sensitive to changes in interest rates. Therefore, when both the time to maturity and YTM increase, the duration of the bond will decrease, which is not one of the options given in the question. Thus, the best choice is B), as it reflects the inverse relationship between the time to maturity and YTM with the duration of the bond.

The Duration of a Bond Will Increase as the Time