What is Duration in fixed income finance?
AThe remaining calendar years until a bond matures
BA measure of the price sensitivity of a bond to changes in interest rates
CThe total interest yield accrued on a bond
DThe credit rating assigned by standard rating agencies
Explanation
Core Concept: Macaulay and Modified Duration measure the weighted average time until expected cash flows are received and quantify a bond’s price sensitivity to interest rate fluctuations. Context/Distractors: Calendar maturity is simply maturity date; duration incorporates coupon timing and yields. Exam Tip/Key Fact: Bonds with longer maturity and lower coupon rates have higher duration and higher interest rate risk.
Exam Relevance
- Topic: Corporate Finance
- Subtopic: Fixed Income & Risk
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