CFA Level I · CFA Level I Exam · Yield-Based Bond Duration Measures and Properties
Two bonds have the same maturity and the same yield-to-maturity. Bond X is a zero-coupon bond and Bond Y pays a 5% annual coupon. Which statement about their Macaulay durations is most accurate?
The zero-coupon bond has a Macaulay duration equal to its maturity, which is greater than the duration of the coupon bond. The coupon bond pays cash before maturity, lowering its weighted-average time to cash flow below its maturity.
- ABond X has a duration equal to its maturity, which exceeds Bond Y's durationCorrect
- BBond X and Bond Y have equal durations because maturity and yield are the same
- CBond X has a duration below its maturity, and Bond Y has a duration equal to its maturity
Explanation
A zero-coupon bond has a single cash flow at maturity, so its Macaulay duration equals its time to maturity. A coupon bond returns some cash earlier, so its duration is less than maturity.
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