Question

a.) All else equal, as yields go down, bond duration goes _________ (up/down). This means that the bond price becomes ________ (more/less) sensitive to changes in interest rates as yields are lower, all else equal.

b.) All else equal, as coupon rates go down, bond duration goes ________ (up/down). This means that the bond price becomes ________ (more/less) sensitive to changes in interest rates as coupon rates are lower, all else equal.

c,) All else equal, as time to maturity goes down, bond duration goes ________ (up/down). This means that the bond price becomes ________ (more/less) sensitive to changes in interest rates as coupon rates are lower, all else equal.

Answer 1

a.) All else equal, as yields go down, bond duration goes up. This means that the bond price becomes more sensitive to changes in interest rates as yields are lower, all else equal.

b.) All else equal, as coupon rates go down, bond duration goes up. This means that the bond price becomes more sensitive to changes in interest rates as coupon rates are lower, all else equal.

c,) All else equal, as time to maturity goes down, bond duration goes down. This means that the bond price becomes less sensitive to changes in interest rates as coupon rates are lower, all else equal.

Bond Duration is directly proportional to time to maturity and inversely proportional to bond yield and coupon rate.