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CFA Level I · CFA Level I Exam · Yield-Based Bond Duration Measures and Properties

A 6% annual-pay bond is priced at par with a yield of 6%, and has a Macaulay duration of 4.47 years. If the yield rises to 8% with all else unchanged, the bond's Macaulay duration is most likely:

Macaulay duration would be lower than 4.47 years. A higher yield discounts distant cash flows more heavily, shrinking the weights on later payments including principal, so the weighted average time to receive cash flows shortens. Duration and yield move in opposite directions for a coupon bond.

  1. Alower than 4.47 yearsCorrect
  2. Bequal to 4.47 years
  3. Chigher than 4.47 years

Explanation

A higher yield reduces the present value of distant cash flows more than nearer ones, so the weights on later cash flows including the principal fall. The weighted average time to receipt therefore decreases. Duration is not constant when yield changes.

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