Which Duration Is Computed by Discounting Flows Using the Yield

question 81

Multiple Choice

Which duration is computed by discounting flows using the yield to maturity of the bond?

• A) Effective
• B) Macaulay Duration
• C) Modified Duration
• D) Present Value Duration
• E) Cash Flow Duration

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Definitions:

Effective-Interest Method

An accounting practice used to amortize the discount or premium on bonds payable over the bond’s life, reflecting a constant rate of interest.

Bonds

Long-term debt securities issued by corporations or governments, promising to pay the holder a specified amount of interest over a set period of time before returning the principal amount.

Amortization

The process of gradually writing off the initial cost of an intangible asset over a period of time, reflecting its consumption, expiration, or obsolescence.

Accounting Period

The time period covered by the financial statements.