Unformatted text preview: maturity. Some Rules for Bond Duration. 1.) The duration of a zero-coupon bond is equal to its time to maturity. 2.) Holding the time to maturity and yield to maturity constant, a bond’s duration and interest rate sensitivity are higher when the coupon is lower. (This result is similar to #5 above.) 3.) Holding the coupon constant, duration and interest rate sensitivity generally increase with the time to maturity. Duration always increases for bonds selling at par or at a premium. (This result is similar to #3 above.) 4.) Holding other factors constant, duration and interest rate sensitivity of a coupon bond are higher when the bond’s yield to maturity is lower. (This result is similar to #6 above.) (Duration Rule #4 does not apply to zero-coupon bonds because the duration of a zero-coupon bond is always the term to maturity, regardless of the yield to maturity.) 5.) The duration of a level perpetuity equals (1+i) / i....
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- Fall '10
- Bond duration, Zero-coupon bond