- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 11. Yield-Based Bond Duration Measures and Properties
- Subject 3. Properties of Bond Duration
CFA Practice Question
The duration of a bond ______ whenever the bond pays a coupon.
B. decreases
C. remains the same
A. increases
B. decreases
C. remains the same
Correct Answer: A
Since the duration is the average time to whatever payments are promised by the bond, it's reasonable that duration increases when the very near-term payment disappears from the future payment stream right after the coupon payment.
User Contributed Comments 6
| User | Comment |
|---|---|
| CJPerugini | Wouldn't it decrease duration? Duration is a measure of interest rate risk/sensitivity to a change in its yield. A decrease in a bond's periods to maturity decreases interest rate risk. By making a coupon payment, the number of periods to maturity has decreased thus decreasing duration. |
| lvjunzhang | Maturity: The longer a bond's maturity, the greater its duration (and volatility). Duration changes every time a bond makes a coupon payment. Over time, it shortens as the bond nears maturity. |
| ashish100 | Explanation and the guy above didn't help me understand this at all. Can someone else explain it for CJ and I so that the rest of the world can understand this? |
| Kiniry | Just read the notes. Duration of the bond has a sawtooth pattern over time. Exhibit 6 in the CFA text if you want to read there. |
| dbedford | Part of a bond duration calc is t/T and when a coupon is paid t = 0 at that time and then the duration spikes until the next day when t = full time before next coupon. When t = 0, t/T is temporarily removed from duration calc causing duration to spike for that day |
| zriddle | Saw tooth graph, it declines before the coupon then spikes after payment. |