Which of the Following Two Bonds Is More Price Sensitive

question 13

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.
• E) None of the options are correct.

---

Definitions:

Psychological Dependence

Refers to the emotional or mental attachment to a substance, behavior, or activity, leading to a feeling of needing it to function or feel normal.

Physical Dependence

A state where the body has adapted to a substance, leading to withdrawal symptoms when the use of the substance is significantly reduced or stopped.

Tolerance

The act or capacity of enduring or being less responsive to a substance (e.g., drugs, alcohol) or stimulus over a period of exposure, or an attitude of acceptance and openness towards the beliefs or practices different from one's own.

Drugs

Substances that are used to treat, cure, prevent, or diagnose a disease or to promote well-being.