Question
Asked Nov 20, 2019
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  1. How is a bond’s duration impacted by varying the coupon rate?
  2. How is a bond’s duration impacted by varying the time to maturity?
  3. What implications would these impacts have for a bond investor if interest rates change?
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Expert Answer

Step 1

1.

 

Bond duration and coupon rate have inverse relation that means if coupon rate increase then the payback of the bond is faster and if the coupon rates decrease then the payback of the bond is slower.

Step 2

2.

 

Bond duration and time to maturity have positive relation that means if the bond matures early then the payback of the bond is faster and if the bond takes too much time to mature than the payback of the bond is slower.

 

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