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Ch.1 · Comparing Financial Products · hard

What is 'duration' in the context of a debt instrument or debt mutual fund?

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EXPLANATION

Duration (Macaulay or Modified Duration) measures a bond or fund's price sensitivity to interest rate changes. A fund with a higher duration will experience larger NAV movements for a given change in interest rates.

A.The number of years remaining to the bond's maturity date

B.The average holding period of investors in the scheme

C.The period for which the investor must remain invested to avoid exit load

D.A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years [✓ Correct]

EXPLANATION

Duration (Macaulay or Modified Duration) measures a bond or fund's price sensitivity to interest rate changes. A fund with a higher duration will experience larger NAV movements for a given change in interest rates.

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