Understanding Duration and Its Implications

Very Easy Fixed Income Valuation Duration And Convexity

In the context of fixed-income securities, duration is a measure of the sensitivity of the price of a bond to changes in interest rates. It serves as an important tool for assessing interest rate risk. A bond with a higher duration indicates greater sensitivity to interest rate changes, while a bond with a lower duration indicates less sensitivity.

Which of the following statements about duration is correct?

Duration measures the time until a bond matures.

Duration indicates how much the price of a bond will change for a 1% change in yield.

All bonds have the same duration.

Hint

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