Q:
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

A:
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 option-writing income, and any hedging strategies that have been employed by that particular fund.

RELATED FAQS

  1. How does duration impact bond funds?

    Learn how duration for a bond fund measures the risk the bond portfolio has to a rise in interest rates, and see how managers ...
  2. How can I use a bond's duration to predict its return?

    Learn how the concept of duration is used to determine when future cash flows for a bond will equal the amount paid for the ...
  3. What is the relationship between modified duration and interest rates?

    Learn about modified duration and Macaulay duration, how to calculate the durations of bonds, and how interest rates and ...
  4. What is the average profit margin of a company in the chemicals sector?

    Learn more about the Macaulay duration and the modified duration, how to calculate a bond's Macaulay duration and modified ...
  5. Which is a better metric, modified duration or Macaulay duration?

    Learn why the modified duration is a more useful metric than the Macaulay duration, and understand how the measures are different ...
  6. What is the risk return tradeoff for bonds?

    Find out more about the Macaulay duration and modified duration, how to calculate them and the difference between the Macaulay ...
RELATED TERMS
  1. Dollar Duration

    Dollar duration measures the dollar change in a bond's value ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) ...
  3. Effective Duration

    A duration calculation for bonds with embedded options. Effective ...
  4. Empirical Duration

    The calculation of a bond's duration based on historical data. ...
  5. Modified Duration

    A formula that expresses the measurable change in the value of ...
  6. Key Rate Duration

    Holding all other maturities constant, this measures the sensitivity ...

You May Also Like

Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center