Fixed Income and Duration Sensitivity

Very Easy Fixed Income Valuation Duration And Convexity

Duration is a key concept in fixed income valuation that measures the sensitivity of a bond's price to changes in interest rates. It provides investors with insight into the timing of cash flows and the bond's price volatility. A longer duration indicates greater sensitivity to interest rate changes.

Which of the following statements correctly describes the relationship between a bond's duration and interest rate movements?

A bond with a shorter duration will experience more price volatility with interest rate changes.

A bond with a longer duration will experience more price volatility with interest rate changes.

A bond's duration is unaffected by its coupon rate.

Hint

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