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All else being the same, which has more interest risk, a long-term bond or a short...

All else being the same, which has more interest risk, a long-term bond or a short term bond?

What about a low coupon bond compared to a high coupon bond?

what about a long-term, high coupon bond compared to a short-term, low coupon bond?

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Answer #1

A long-term bond has higher interest rate risk compared to short-term bond, all else being the same.

A low coupon bond has higher interest rate risk compared to high coupon bond, all else being the same.

When comparing high coupon, long-term bond to low coupon, short-term bond, it is unsure which bond has more interest rate risk. Generally, maturity of bond is more important determinant of interest rate risk, so long-term, high coupon bond has probably more interest rate risk. An exception would be if maturities are close, and coupon rates are vastly different.

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