Macaulay's Duration

question 17

Multiple Choice

Macaulay's duration:

• A) is a weighted average of the time until cash flows are received.
• B) is always greater than maturity.
• C) is never equal to maturity.
• D) directly indicates how much the price of a security will change given a change in interest rates.
• E) estimates when embedded options will be used.

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Definitions:

Inflationary Pressures

Situations or factors that lead to an overall increase in prices, reducing purchasing power in an economy.

Interest Rates

This represents the cost, in percentage terms of the principal, that a borrower incurs from a lender to utilize their assets.

Maturity Risk

The risk of loss to an investor from changes in the price of a bond that arise from changes in the market interest rate. Also called price risk and interest rate risk. The term maturity risk emphasizes the fact that interest-induced price changes are larger with longer maturities.

Bond Prices

The market price for which a bond is bought or sold, influenced by interest rates, credit quality, and other factors.