Assume That the Required Yield to Maturity on a Consol

question 46

Multiple Choice

Assume that the required yield to maturity on a consol bond increases from 6% to 12%.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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Definitions:

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how much the values deviate from the mean.

Exponential Random Variable

A type of random variable that represents the time between events in a Poisson point process, characterized by a constant mean rate.

Mean

The average of a set of numbers, calculated by dividing the sum of these numbers by the count of numbers in the set.

Standard Deviation

A tool for assessing the scope of variation or dispersion among a series of figures.