For zero-coupon bonds, the duration equals what?

Study for the Series 65 Exam. Enhance your knowledge with flashcards and multiple choice questions, each supplemented with hints and explanations. Prepare effectively and get confident about your upcoming exam!

Multiple Choice

For zero-coupon bonds, the duration equals what?

Explanation:
Duration is the weighted average time to receive a bond’s cash flows. A zero-coupon bond makes no payments until maturity, so all cash flows occur at one point in time. That means the weighted average arrival time is simply the time to maturity. Therefore, the duration equals the bond’s maturity. (If you hear modified duration, it’s usually slightly less than that due to the yield adjustment, but the standard duration measure for a zero-coupon bond matches maturity.)

Duration is the weighted average time to receive a bond’s cash flows. A zero-coupon bond makes no payments until maturity, so all cash flows occur at one point in time. That means the weighted average arrival time is simply the time to maturity. Therefore, the duration equals the bond’s maturity. (If you hear modified duration, it’s usually slightly less than that due to the yield adjustment, but the standard duration measure for a zero-coupon bond matches maturity.)

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