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Which of the following coupon paying bonds has the largest duration Select one: a. Time to...

Which of the following coupon paying bonds has the largest duration

Select one:

a. Time to maturity = 2 years, Coupon rate = 4%

b. Time to maturity = 6 years, Coupon rate = 2%

c. Time to maturity = 6 years, Coupon rate = 4%

d. Time to maturity = 2 years, Coupon rate = 2%

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Answer #1

Answer - Option b

Duration of a bond is directly related to the time to maturity. Higher the time to maturity, higher is the duration of the bond. So, in this case, option b and c have bonds with higher maturity. So, answer has to be in between these 2 options.

Duration of the bond is also inversely related to the coupon rate. Lower the coupon rate, higher is the duration of the bond. So, option b has lower coupon rate and hence higher duration.

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