A:
One way to determine the volatility of a bond is to calculate its duration. Duration takes into consideration all of the following EXCEPT:
A) Debt to equity ratio
B) Income generated by the coupons
C) Hedging strategies
D) Average maturity
The correct answer is a):
Duration is the change in the value of a fixed income security that will result from a 1% change in interest rates. Duration takes into consideration the average maturity of the bonds in the portfolio, the income generated by the coupons, any optionwriting income, and any hedging strategies that have been employed by that particular fund.
Duration is the change in the value of a fixed income security that will result from a 1% change in interest rates. Duration takes into consideration the average maturity of the bonds in the portfolio, the income generated by the coupons, any optionwriting income, and any hedging strategies that have been employed by that particular fund.
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Dollar Duration
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Modified Duration
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