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NEW QUESTION: 1
Which of the following will have the effect of increasing the duration of a bond, all else remaining equal:
I. Increase in bond coupon
II. Increase in bond yield
III. Decrease in coupon frequency
IV. Increase in bond maturity
A. III and IV
B. I and III
C. I and II
D. II, III and IV
Answer: A
Explanation:
Explanation
An increase in coupon brings the 'average' cash flows closer, thereby decreasing duration. The higher the coupon, the lower the duration.
An increase in yield discounts the cash flows that are further away more than it does the closer cash flows, so an increase in yield decreases duration.
An increase in coupon frequency brings the bond's cash flows closer, thereby decreasing duration. Decreasing the coupon frequency has the opposite effect.
An increase in maturity pushes the payments further out, thereby increasing duration.


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