Which of the Following Two Bonds Is More Price Sensitive

question 67

Multiple Choice

Which of the following two bonds is more price sensitive to changes in interest rates? 1) A par-value bond, A, with a 12 year to maturity and a 12% coupon rate.
2) A zero-coupon bond, B, with a 12 year to maturity and a 12% yield to maturity.

• A)Bond A because of the higher yield to maturity
• B)Bond A because of the longer time to maturity
• C)Bond B because of the longer duration
• D)Both have the same sensitivity because both have the same yield to maturity.

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