If its yield to maturity declined by 1%,which of the following bonds would have the largest percentage increase in value?
A) A 1-year zero coupon bond.
B) A 1-year bond with an 8% coupon.
C) A 10-year bond with an 8% coupon.
D) A 10-year bond with a 12% coupon.
E) A 10-year zero coupon bond.

Question

Quizplus · Accepted Answer

Zero coupon bonds have the longest duration, meaning they are the most sensitive to changes in interest rates. Therefore, a 1% decline in yield to maturity will result in the largest percentage increase in value for a zero coupon bond with a longer maturity, such as the 10-year zero coupon bond in this question.

If Its Yield to Maturity Declined by 1%,which of the Following