DurationA) assesses the time element of bonds in terms of both coupon and term to maturity.B) allows structuring a portfolio to avoid interest-rate risk.C) is a direct comparison between bond issues with different levels of risk.D) assesses the time element of bonds in terms of both coupon and term to maturity and allows structuring a portfolio to avoid interest-rate risk.E) assesses the time element of bonds in terms of both coupon and term to maturity and is a direct comparison between bond issues with different levels of risk.

Question

DurationA)  assesses the time element of bonds in terms of both coupon and term to maturity.B)  allows structuring a portfolio to avoid interest-rate risk.C)  is a direct comparison between bond issues with different levels of risk.D)  assesses the time element of bonds in terms of both coupon and term to maturity and allows structuring a portfolio to avoid interest-rate risk.E)  assesses the time element of bonds in terms of both coupon and term to maturity and is a direct comparison between bond issues with different levels of risk.

Sarah SARE4430 · Accepted Answer

Final Answer : D, Explanation :  Duration measures the sensitivity of a bond's price to changes in interest rates, incorporating both the time to maturity and the coupon payments. It can be used to structure a portfolio in such a way as to minimize interest rate risk, by matching the duration of assets and liabilities. It does not directly compare different levels of risk between bond issues; rather, it is a measure of interest rate risk.

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