Assume That the Required Yield to Maturity on a Consol

question 39

Multiple Choice

Assume that the required yield to maturity on a consol bond increases from 6 per cent to 12 per cent. What is the impact on the consol bond's duration?

• A) As there are no intervening cash flows between issue and maturity, the duration will always equal the bond's maturity.
• B) As interest rates rise, the duration of consol bonds falls.
• C) As interest rates rise, the duration of consol bonds rises.
• D) There will be no impact on the bond's duration.

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