Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?
A)a ten-year bond with a $1000 face value whose coupon rate is 5.8% APR paid semi-annually
B)a ten-year bond with a $1000 face value whose coupon rate is 7.4% APR paid semi-annually
C)a 20-year bond with a $1000 face value whose coupon rate is 5.8% APR paid semi-annually
D)a 20-year bond with a $1000 face value whose coupon rate is 7.4% APR paid semi-annually
E)a 15-year bond with a $1000 face value whose coupon rate is 6.6% APR paid semi-annually

Question

Quizplus · Accepted Answer

The 20-year bond with a 5.8% APR paid semi-annually (C) will be most sensitive to a change in interest rates because it has the longest duration and the lowest coupon rate among the options, making it more susceptible to interest rate changes. Longer duration bonds and those with lower coupon rates generally have higher interest rate sensitivity.

Which of the Following Bonds Will Be Most Sensitive to a Change