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FRM Part I · FRM Exam Part I · Properties of Interest Rates

Other things equal, which change would increase the Macaulay duration of a fixed-rate coupon bond that currently trades at par?

Lengthening the maturity increases duration. Cash flows then occur later, so the present-value-weighted average time rises. A higher coupon, a higher yield, or more frequent coupon payments all shift value toward earlier dates and therefore reduce Macaulay duration.

  1. ALengthening the time to maturityCorrect
  2. BIncreasing the coupon rate
  3. CIncreasing the yield
  4. DChanging coupon payments from annual to semiannual

Explanation

For a par bond, a longer maturity pushes cash flows further out and raises duration. A higher coupon returns more value earlier, a higher yield reduces the weight of distant cash flows, and more frequent coupons also bring cash flows forward; each of these lowers duration.

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