Which of the following bonds has the greatest price risk?
A) A 10-year $100 annuity.
B) A 10-year,$1,000 face value,zero coupon bond.
C) A 10-year,$1,000 face value,10% coupon bond with annual interest payments.
D) All 10-year bonds have the same price risk since they have the same maturity.
E) A 10-year,$1,000 face value,10% coupon bond with semiannual interest payments.

Question

Quizplus · Accepted Answer

Zero coupon bonds have the greatest price risk as they have no coupon payments to offset potential changes in interest rates. Therefore, the entire return of the bond comes from the price appreciation/depreciation, making them the most sensitive to interest rate changes.

Which of the Following Bonds Has the Greatest Price Risk