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According to the coupon effect, which of the following if true? Group of answer choices All...

According to the coupon effect, which of the following if true?

Group of answer choices

All else equals, high coupon bond experiences larger change in price when rate changes

All else equals, high coupon bond experiences smaller change in price when rate changes

None of the above.

All else equals, low coupon bond experiences smaller change in price when rate changes

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Answer #1

Answer:- All else equals, high coupon bond experiences smaller change in price when rate changes

Explanation:- This option is correct as the price of the bond with low coupon will be impacted more when rate changes as compared to the price of high coupon bond . This is because the cash flows are weighed much more towards the maturity date in case of low coupon bond because of the small interest payment. Hence, the option " All else equals, high coupon bond experiences smaller change in price when rate changes" is true.

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