Duration and Risk

Question 1

Duration is the

Answer 1

number of years, on a present-value basis, that it takes to recover an initial investment in a bond

Question 2

For coupon bonds the duration is shorter than

Answer 2

maturity for all bonds except zero coupon bonds.

Question 3

Duration is equal to

Answer 3

maturity for zero coupon bonds.

Question 4

Bonds with high coupon rates and in turn high yields will tend to have a lower duration than bonds that pay low coupon rates, or offer a low yield.

Answer 4

True or False? (T)

Question 5

Part of a security’s stand-alone risk that cannot be eliminated by diversification.

Answer 5

Market risk