CFA Practice Question

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CFA Practice Question

Duration of a pure discount bond is ______.

A. less than a zero coupon bond
B. equal to its liabilities hedged
C. equal to its maturity
Correct Answer: C

User Contributed Comments 8

User Comment
myanmar pure discount bond = zero bond --> the duration of a zero bond is always it's maturity
xcye Umm.. I remember this from one of my finance classes: duration is not only the indicator for price sensitivity, but also the amount of time you need to recover the dollar amount of your initial investment (thus it's called duration). Since zero coupon bond doesn't pay any interest and only has a bullet payment at the end of its maturity, the duration is always its maturity.
StanleyMo thanks xcye :)
Richie188 can anyone show how to prove this mathematically?
anneki @Richie188 enroll for a pHD in Finance
johntan1979 Go to Investopedia, search for "advanced bond concepts duration"
jonan203 yea, the mathematical proof was about 7 modules back...
gill15 No proof the notes...nobody reads the notes in this sectino

Duration is defined as the weighted average time to full recovery of principal and interest payments

Now you can finish it.
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