Question

According to the rule of thumb in finance, a bond's return should move about +/- 1% for each +/- 1% change in the yield per year of what?

a) Coupon rate
b) Maturity
c) Duration
d) Face value

Answer 1

The correct answer is Duration.

Step-by-step explanation:

The rule of thumb in finance states that a bond's return should move about +/- 1% for each +/- 1% change in the yield per year of the duration of the bond.

The duration of a bond measures how sensitive its price is to changes in interest rates. A bond with a longer duration will experience a larger price change for a given change in interest rates compared to a bond with a shorter duration.

Therefore, the correct answer is c) Duration.