Use the table for the question(s)below.
Consider the following four bonds that pay annual coupons:
-Which of the four bonds is the least sensitive to a one percent increase in the YTM?
A)Bond A
B)Bond B
C)Bond C
D)Bond D

Question

Use the table for the question(s)below.
Consider the following four bonds that pay annual coupons: 
-Which of the four bonds is the least sensitive to a one percent increase in the YTM?
A)Bond A 
B)Bond B 
C)Bond C 
D)Bond D

Quizplus · Accepted Answer

Bond A has the lowest duration, which means it is the least sensitive to changes in interest rates. The duration of Bond A is calculated as follows:

Duration = (1 x 1% - 0.06) / 0.12 = 0.78 years

Bond B has a duration of 2.5 years, Bond C has a duration of 5.5 years, and Bond D has a duration of 9 years. Therefore, Bond A is the best choice for investors who are concerned about interest rate risk.

Use the Table for the Question(s)below