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Given everything else is constant how does different time to maturity affect the duration of a...

Given everything else is constant how does different time to maturity affect the duration of a bond?

Given everything else is constant how does different coupon rate or bond yield affect the price of a bond?

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Answer #1

Duration is a measure of bond's interest rate risk. Hence, higher is the bond term maturity, higher is the bond's duration, since it is exposed to interest rate fluctuations for a longer period of time.

Two bonds having same yield to maturity with one bond making higher coupon and the second one making lower coupon payments. Here, the higher coupon rate bond is more exposed to the market interest rate fluctuations than a bond with a lower coupon rate and hence the bond price is more change to fluctuations.

As the bond yield increases, bond price decreases. This is because make the bond yield equal to the expected yield. Hence, bond yield and bond price have a negative correlation.

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