# duration

In December 2004, an investor purchases a zero-coupon bond issued in 1998 and maturing in December 2008. What is the bond’s approximate duration? A) 4 years. B) 10 years. C) 6 years. D) Cannot be determined. The answer is 4 years. My question: How does this make sense when from what I understand duration is a measure of price sensitivity to a change in yield (I chose d)? What does the 4 years mean? Just the time to maturity? When someone asks for the duration of a bond isn’t the correct answer more like “the price will move x percentage points per y percentage point change in yield.”?

Zero coupon bonds duration = Maturity.

years TO maturity…not just maturity

Right, there are four remaining years to maturity.

Exactly… for a zero-coupon, duration=time to maturity. I suffered at L2 because I had missed this point at L1 (but never forgot it thereafter). This is actually related to why the sensitivity to interest rates is called “duration” and not “interest rate beta.” Bonds that have a longer time to maturity (that endure longer) have higher durations. For a coupon bond, duration < time to maturity. The more/larger the CFs that come in earlier, the lower the bond’s duration.