Which bond is more sensitive to an interest rate change of 0.75%?
Bond A: YTM = 4.00%,maturity = 8 years,coupon = 6% or $60,par value = $1,000.
Bond B: YTM = 3.50%,maturity = 5 years,coupon = 7% or $70,par value = $1,000.
A)bond A
B)bond B
C)both are equally sensitive
D)cannot be determined

Question

Quizplus · Accepted Answer

Bond A will be more sensitive to an interest rate change of 0.75% because it has a longer maturity of 8 years compared to Bond B's 5 years. Longer-term bonds are generally more sensitive to changes in interest rates because their cash flows are further into the future and are discounted more heavily.

Which Bond Is More Sensitive to an Interest Rate Change