Page 203 - A Canuck's Guide to Financial Literacy 2020

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▪ For example, if you expect rates to rise, it may make sense to focus on shorter
duration investments as they have less interest rate risk.
▪ If you expect rates to fall, it may make sense to focus on longer duration investments
so you can take advantage of price appreciation.

Factors That Affect Duration

▪ Coupon Rate
▪ The Higher the Coupon Rate, the Lower the Duration

▪ The Lower the Coupon Rate, the Higher the Duration
▪ Time to Maturity
▪ The longer the Time to Maturity, the Higher the Duration
▪ The shorter the Time to Maturity, the Lower the Duration

To conclude the chapter of bonds, keep in mind the following points:

▪ Bonds are just like IOUs.
▪ Buying a bond means you are lending out your money.
▪ Bonds are considered fixed income instruments as their cash flow is fixed.

▪ A bond is characterized by its face value, coupon rate, maturity, and issuer.
▪ Yield is the rate of return you get on a bond.

▪ When price goes up, yield goes down and vice versa.
▪ When interest rates rise, the price of bonds in the market falls and vice versa.