CFA Level I · CFA Level I Exam · Yield-Based Bond Duration Measures and Properties
Holding all other factors constant, which of the following fixed-rate bonds is most likely to have the highest Macaulay duration?
The 10-year bond with the 2% coupon has the highest Macaulay duration. Duration increases with maturity and decreases with coupon rate, because a low coupon pushes more of the present value of cash flows toward the final maturity payment.
- AA 5-year bond with a 6% coupon
- BA 10-year bond with a 6% coupon
- CA 10-year bond with a 2% couponCorrect
Explanation
Macaulay duration rises with longer maturity and falls with higher coupon rates. The 10-year bond has a longer maturity than the 5-year bond, and the 2% coupon bond returns less cash early than the 6% coupon bond, so its weighted average time to cash flows is longest.
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