All else equal, as compared to an annual payment fixed income security, a semi-annual payment security has a
A)lower duration value and lower market value.
B)higher duration but lower price sensitivity.
C)lower duration and more cash flows.
D)higher duration and more cash flows.
E)none of the options.

Question

Quizplus · Accepted Answer

A semi-annual payment security has more cash flows than an annual payment security, which results in a higher duration. The higher duration leads to more price sensitivity, meaning that the price of the security will fluctuate more in response to changes in interest rates.

All Else Equal, as Compared to an Annual Payment Fixed