Question

Used to measure a bond's sensitivity to a shift at one or more maturity segments of the yield curve which result in a change to yield curve shape:

a) Macaulay duration
b) Modified duration
c) Key rate duration
d) Convexity

Answer 1

The bond measurement that reflects sensitivity to a shift in maturity segments of the yield curve is key rate duration.

Step-by-step explanation:

The answer to the question is c) Key rate duration. Key rate duration is a measure used in bond valuation to analyze the sensitivity of a bond's price to changes in specific segments or key rates of the yield curve. It examines the impact of changes in these key rates on the bond's price, taking into account the convexity of the bond.

For example, if a bond has a higher key rate duration at the 5-year segment, it means that changes in the yield at the 5-year maturity will have a larger impact on the bond's price compared to changes at other maturities. This helps investors and analysts understand the risk associated with fluctuations in different parts of the yield curve.