Question

Which of the following bonds has a price that is less sensitive to changes in interest...

Which of the following bonds has a price that is less sensitive to changes in interest rates?

Group of answer choices

A 11-year bond with face value of $100, coupon rate of 10%, annual coupon payments, and yield to maturity of 3.00% (APR).

A 11-year bond with face value of $100, coupon rate of 15%, annual coupon payments, and yield to maturity of 3.00% (APR).

A 11-year bond with face value of $100, coupon rate of 0%, annual coupon payments, and yield to maturity of 3.00% (APR).

A 11-year bond with face value of $100, coupon rate of 1%, annual coupon payments, and yield to maturity of 3.00% (APR).

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Answer #1

The Correct option is the second one, that is the Bond with a coupon rate of 15%

All the bonds have the same maturity and YTM. So when the maturity and YTM of bonds are the same, the BOND with the highest Coupon rate will have the lowest duration. It is because the bond will keep on making payments and will not keep huge payments to be made at maturity. So the Price change risk decreases with a low duration. Does the bond with the highest coupon rate will be less sensitive to Interest rate changes.


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