The duration of a bond:
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A. B. C. D.A
The duration of a bond is a measure of its sensitivity to changes in interest rates. It is an estimate of the weighted average time period over which the bond's cash flows (coupon payments and principal repayment) are received. The duration is expressed in years.
The correct answer to the question is D. The duration of a zero coupon bond is greater than its maturity. A zero coupon bond does not pay coupon interest. Instead, it is issued at a discount to its face value and matures at par. The longer the maturity of a zero coupon bond, the greater the discount at which it is issued, and the greater its duration.
Option A is incorrect. The duration of a bond paying coupon interest is greater than its maturity. This is because the cash flows from the bond include both coupon payments and principal repayment, and the coupon payments are received periodically over the life of the bond, not just at maturity.
Option B is incorrect. Coupon yield is not directly related to the duration of a bond. Coupon yield is the annual rate of return on the bond's face value, while duration is a measure of its sensitivity to changes in interest rates.
Option C is incorrect. The duration of a bond generally increases with maturity. This is because the longer the maturity, the greater the exposure to changes in interest rates. Therefore, longer-term bonds have greater duration, and are more sensitive to changes in interest rates than shorter-term bonds.