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Basic Question 6 of 6
Duration of a pure discount bond is ______.
B. equal to its liabilities hedged
C. equal to its maturity
A. less than a zero coupon bond
B. equal to its liabilities hedged
C. equal to its maturity
User Contributed Comments 8
| User | Comment |
|---|---|
| myanmar | pure discount bond = zero bond --> the duration of a zero bond is always it's maturity |
| xcye | Umm.. I remember this from one of my finance classes: duration is not only the indicator for price sensitivity, but also the amount of time you need to recover the dollar amount of your initial investment (thus it's called duration). Since zero coupon bond doesn't pay any interest and only has a bullet payment at the end of its maturity, the duration is always its maturity. |
| StanleyMo | thanks xcye :) |
| Richie188 | can anyone show how to prove this mathematically? |
| anneki | @Richie188 enroll for a pHD in Finance |
| johntan1979 | Go to Investopedia, search for "advanced bond concepts duration" |
| jonan203 | yea, the mathematical proof was about 7 modules back... |
| gill15 | No proof guys...read the notes...nobody reads the notes in this sectino Duration is defined as the weighted average time to full recovery of principal and interest payments Now you can finish it. |
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Learning Outcome Statements
explain how a bond's maturity, coupon, and yield level affect its interest rate risk
CFA® 2025 Level I Curriculum, Volume 4, Module 11.