Canadian Securities Course (CSC) Practice Exam

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What does duration measure in terms of bond investments?

Time until the bond matures
Price volatility of the bond
Yield of the bond
Sensitivity of a bond's price to changes in interest rates

The correct answer is: Sensitivity of a bond's price to changes in interest rates

Duration measures the sensitivity of a bond's price to changes in interest rates. This means that duration measures the potential impact of any changes in interest rates on the price of the bond. The other options are incorrect because A) Time until the bond matures does not necessarily indicate any changes in interest rates. B) Price volatility of the bond does not take into account interest rates. C) Yield of the bond is the percentage return an investor receives from holding a bond, not its sensitivity to changes in interest rates.