The Duration of a Zero-Coupon Bond

question 21

Multiple Choice

The duration of a zero-coupon bond:

• A)is smaller than its maturity
• B)exceeds its maturity
• C)equals its maturity
• D)depends on the size and timing of intervening cash flows between issue and maturity

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates the stock is more volatile than the market, while a beta less than 1 means it is less volatile.

Yield Curve

A graphical representation of the interest rates on debt for a range of maturities.

Market Risk Premium

The extra return over the risk-free rate that investors require to compensate them for the risk of holding a market portfolio.

Required Return

The minimum rate of return on an investment that investors expect or require to compensate for risks taken.