Question

Consider the following bonds: Coupon Rate Maturity Bond (annual payments) (years) A 0% 15 B 0%...

Consider the following bonds:
Coupon Rate Maturity
Bond (annual payments) (years)
A 0% 15
B 0% 10
C 4% 15
D 8% 10
a. What is the percentage change in the price of each bond if its yields to maturity falls from 6% to 5%?
Par value
Yield to maturity Price at Percentage
Bond Coupon Rate Maturity Price 5.00% Change
A
B
C
D
b. Which of the bonds A–D are most sensitive to a 1% drop in interest rates from 6% to 5% and why? Which bond is least sensitive? Provide an intuitive explanation for your answer.
is the most sensitive to changes in bond yields
is the least sensitive to changes in bond yields
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