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Which duration of a bond is a time-weighted measure

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Reference no: EM133000909

Problem 1. The duration of a bond is a "time-weighted measure of maturity" and as such will always be:

a. Greater than or equal to the actual maturity (term) of the bond

b. Less than or equal to the actual maturity (term) of the bond

c. Greater than the actual maturity (term) of the bond

d. Less than the actual maturity (term) of the bond.

Problem 2. Suppose a financial institution immunizes a certificate of deposit (CD). It will invest in assets (perhaps bonds) with the same duration as the CD such that:

a. No value change will occur in either the bonds or the CD.

b. If interest rates change, the actual maturity (term) of the bonds will be equal to the actual term/maturity of the CD.

c. The actual term/maturity of the CD will increase.

d. If interest rates change, the price of the CD and the price of the bond portfolio will be very similar.

Reference no: EM133000909

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