Which of the Following Two Bonds Is More Price Sensitive

question 26

Multiple Choice

Which of the following two bonds is more price sensitive to changes in interest rates? 1) A par value bond, X, with a 5-year year to maturity and a 10% coupon rate.
2) A zero-coupon bond, Y, with a 5-year year to maturity and a 10% yield to maturity.

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

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Definitions:

Samuel Slater

An industrialist known as the "Father of the American Industrial Revolution" for his role in bringing British textile technology to America.

First Factory

Referenced commonly as the birthplace of the industrial revolution, a facility where goods are manufactured or processed, with the first factories emerging in the 18th century.

Cotton Gin

A machine invented by Eli Whitney in 1793 that quickly and efficiently removes seeds from cotton fibers, revolutionizing the cotton industry.

Lowell "Mill Girls"

Young women who worked in the textile mills in Lowell, Massachusetts, during the early to mid-19th century, often under harsh conditions.