What does duration measure for a bond?
- A The time to maturity in years only
- B The sensitivity of the bond's price to a change in interest rates
- C The credit quality of the issuer
- D The frequency of coupon payments
Answer
The sensitivity of the bond's price to a change in interest rates
Duration is a weighted average time to receive cash flows and approximates the percentage price change for a 1% change in yield. Longer duration means greater interest rate risk.





