interest rate on bonds

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May 4, 2014 at 10:22 pm #167448
aishaasad
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Hello Sir,

how does the duration of a bond affects the interest rate?
thanks in advance
May 5, 2014 at 5:27 am #167460
John Moffat
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For the exam you are only expected to be able to discuss this (not calculations).

The main reason is the liquidity preference theory:
The longer investors are deprived of the cash they have invested, the more compensation they require.

(See page 11 of our Course Notes)
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