Fixed Income Q99
0. Which of the following statements is least accurate?
- A
Effective duration is the appropriate duration measure for a callable bond.
- B
The duration of a callable bond is the sensitivity of the bond price to change in the yield-to-worst.
- C
A callable bond does not have a well-defined internal rate of return, hence modified and Macaulay duration cannot be used.
- Option : B
- Explanation : The yield to worst is the lowest of the yield to maturity, yield to first call, yield to second call and so forth. The duration of a callable bond is not the sensitivity of the bond price to change in the yield-to-worst.
