Measuring interest rate risk · Question 10 of 12
Which features lead to a higher duration for otherwise identical bonds?
2 answers are correct. Medium
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Answer
- B A lower coupon
- D A longer remaining term
Explanation
The longer the money is tied up and the later the payments flow, the more strongly the price reacts to changes in interest rates. Low coupons shift the weight of the payments towards the end of the term. A zero-coupon bond therefore has a duration equal to its remaining term.