Duration measures how sensitive a bond's price is to interest rate changes. A bond with duration of 10 will lose roughly 10% in price if rates rise 1%. Longer-maturity bonds have higher duration and more interest rate risk.
Answer: Price sensitivity to interest rate changes. Duration is a measure of interest rate sensitivity — the higher the duration, the more prices move when rates change.
Answer: 20-year bond. Longer maturity bonds have higher duration, so their prices fall more when interest rates rise.
Answer: Falls 7%. Price change ≈ −Duration × change in yield. So a 7-duration bond falls about 7% when rates rise 1%.
Answer: Never — only at maturity. Zero-coupon bonds pay no periodic interest; instead, they're bought at a discount and redeemed at face value.
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