Question

Duration is a useful number because it combines the effects of maturity, coupon, and market rates to indicate how the price of the bond will change with a change in interest rates.

• A. True
• B. False

Duration analysis is subject to the assumption that all interest income can be reinvested at the market rate of interest.

• A. True
• B. False

As the yield to maturity on a bond increases, the duration also increases because of the effect of present value on duration.

• A. True
• B. False

Answer 1

1.the given statement is true before the calculation of the duration will be determined by ascertainment of the effect of maturity of the bond and the coupon of the bond along with the market rates to indicate how the prices of the bond will change with change in interest rates.

The given statement about duration is completely TRUE.

2.the given statement about duration analysis is true because it assume that the bond will be reinvested at the same market rate of interest.

Given statement is TRUE

3.there is an inverse relationship between yield to maturity and the duration of the bond and when the yield to maturity of the bond will go up, the maturity amount will come down.

The given statement about the relationship of yield to maturity and maturity of the bonds is FALSE.