In: Finance
Duration of a ZCB repayable after seven years will be: Select one:
a. More than seven years
b. 3.5 years
c. Less than seven years
d. Seven years
e. None of these
(d) Seven years
Because zero coupon bonds make no coupon payments, a zero coupon bond's duration will be equal to its maturity. The longer a bond's maturity, the longer its duration, because it takes more time to receive full payment.
Examples of zero-coupon bonds include US Treasury bills, US savings bonds, long-term zero-coupon bonds.