Question

In: Finance

Which statement is incorrect? Statement 1: The duration of a zero-coupon bond is the same as...

Which statement is incorrect?

Statement 1: The duration of a zero-coupon bond is the same as its maturity.

Statement 2: The longer a bond's duration, the greater its volatility.

Statement 3: The duration of any bond is the same as its maturity.

Group of answer choices

Statement 3

Statement 1

None

Statement 2

Solutions

Expert Solution

Solution:

Statement 1: The zero-coupon bond does not pay any coupon and has the duration the same as maturity. This statement is correct

Statement 2: The longer the duration the higher the volatility as the change is the price is proportional to the duration. The statement is correct

Statement 3: The duration of the zero coupon bond is same as the maturity while the duration of coupon bond is lower than the maturity. The statement is incorrect

The correct option is A ) Statement 3 is incorrect

jeff jeffy answered 2 years ago
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