Seemed to be a simple question. I got it right, however, I am confused by the explanation for the questions which says that “the duration of the bond does not change with the yield to maturity of the bond”. I always understood that the YTM and duration were inversely related. Any thoughts? (The question in below)
Which of the following statements about duration is least accurate?
A) There is a direct relationship between yield to maturity and duration.
B) There is an inverse relationship between coupon and duration.
C) The effective duration of a zero coupon bond is equal to its maturity.
Your answer: A was correct!
Bonds with larger coupons have a smaller duration, all other things the same. A zero coupon bond has an effective duration equal to its maturity. Duration measures the approximate change in price given a change in interest rates. Therefore, the duration of the bond does not change with the yield to maturity of the bond.
Which of the following statements about duration is least accurate?
A) There is a direct relationship between yield to maturity and duration.
B) There is an inverse relationship between coupon and duration.
C) The effective duration of a zero coupon bond is equal to its maturity.
Your answer: A was correct!
Bonds with larger coupons have a smaller duration, all other things the same. A zero coupon bond has an effective duration equal to its maturity. Duration measures the approximate change in price given a change in interest rates. Therefore, the duration of the bond does not change with the yield to maturity of the bond.