All else equal, how does coupon rate affect duration?

• A. Higher coupon → shorter duration; lower coupon → longer duration.
• B. Higher coupon → longer duration.
• C. Coupon rate does not affect duration.
• D. Duration increases with coupon rate.

Answer: (A)

Duration measures the weighted average time you receive all cash flows from a bond, and it also indicates how sensitive the price is to interest-rate changes. When two bonds have the same maturity and yield, the one with a higher coupon pays more money sooner. Those larger early payments pull the average cash-flow timing closer to today, so the duration becomes shorter. Conversely, a lower coupon means relatively smaller early payments and a greater portion of value comes at the end, pushing the average time out and increasing duration. So, higher coupon → shorter duration; lower coupon → longer duration. As a result, higher coupon bonds are less price-sensitive to interest-rate changes than lower coupon bonds.