All Else Constant, Which of the Following Will Decrease the Macaulay

question 100

Multiple Choice

All else constant, which of the following will decrease the Macaulay duration of a straight bond?
I. reducing the coupon payment
II. shortening the time to maturity
III. lowering the yield to maturity

• A)I only
• B)II only
• C)II and III only
• D)I and II only
• E)I and III only

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Definitions:

Market Price

The price for an asset or service in the market at the present time.

Interest Rate Risk

The risk that changes in interest rates will negatively affect the value of an investment, especially those with fixed interest rates.

Coupon

The interest rate stated on a bond when it's issued, which represents the annual interest payment made to bondholders.

Payable Semiannually

This term indicates that a payment, often in the context of bond interest or dividends, is made twice a year.