Which of the following statements is CORRECT?
A)A zero coupon bond of any maturity will have more interest rate price risk than any coupon bond, even a perpetuity.
B)If their maturities and other characteristics were the same, a 5% coupon bond would have more interest rate price risk than a 10% coupon bond.
C)A 10-year coupon bond would have more reinvestment rate risk than a 5-year coupon bond, but all 10-year coupon bonds have the same amount of reinvestment rate risk.
D)A 10-year coupon bond would have more interest rate price risk than a 5-year coupon bond, but all 10-year coupon bonds have the same amount of interest rate price risk.
E)If their maturities and other characteristics were the same, a 5% coupon bond would have less interest rate price risk than a 10% coupon bond.

Question

Quizplus · Accepted Answer

The lower the coupon rate, the greater the interest rate price risk of a bond because a larger portion of its total return comes from the distant receipt of the par value, which is uncertain. Therefore, a 5% coupon bond would have more interest rate price risk than a 10% coupon bond if their other characteristics were the same.

Which of the Following Statements Is CORRECT