A six-year maturity bond has a five-year duration. Over the next year maturity will decline by 1 year and duration will decline by

Question

Quizplus · Accepted Answer

As a bond approaches maturity, its duration decreases but at a rate less than one year per year because duration is a measure of the weighted average time to receive the bond's cash flows, and as time passes, the bond's cash flows are closer, reducing the duration by less than one year.

A Six-Year Maturity Bond Has a Five-Year Duration