Question

Which of the following bonds is the most sensitive to changes in market interest rates?A) 5-year, zero couponB) 5-year, 5 percent couponC) 5-year, 8 percent couponD) 10-year, zero couponE) 10-year, 5 percent coupon

Answer 1

Answer:

D) 10-year, zero coupon

Explanation:

The zero coupon bonds with longer maturity period are more sensitive to interest rate changes than coupon payments bonds with the same maturity date and  zero coupon bonds with shorter maturity periods.