Which of the following statements is most correct?
A) All else equal,an increase in interest rates will have a greater effect on the prices of long-term bonds than it will on the prices of short-term bonds.
B) All else equal,an increase in interest rates will have a greater effect on higher-coupon bonds than it will have on lower-coupon bonds.
C) An increase in interest rates will have a greater effect on a zero-coupon bond with 10 years maturity than it will have on a 9-year bond with a 10 percent annual coupon.
D) All of the above are correct.
E) Answers a and c are both correct.

Question

Quizplus · Accepted Answer

A is correct because long-term bonds are more sensitive to changes in interest rates than short-term bonds because long-term bonds have a longer time horizon for price volatility. 
C is correct because zero-coupon bonds have no coupon payments and their entire return is dependent on the price appreciation of the bond at maturity. Therefore, an increase in interest rates will have a greater effect on the present value of the zero-coupon bond than on a bond with a 10 percent annual coupon payment.

Which of the Following Statements Is Most Correct