Which of the Following Bonds Would Have the Greatest Percentage

question 71

Multiple Choice

Which of the following bonds would have the greatest percentage increase in value if all interest rates fall by 1%?

• A) 20-year, 10% coupon bond.
• B) 20-year, 5% coupon bond.
• C) 1-year, 10% coupon bond.
• D) 20-year, zero coupon bond.
• E) 10-year, zero coupon bond.

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Definitions:

Equity

Equity represents an owner's share in the assets of a company, remaining after deducting liabilities.

Debt

Debt is an amount of money borrowed by one party from another, under the condition that it is to be repaid at a later date, usually with interest.

Restrictive Covenants

Provisions in a contract or bond agreement that limit certain actions of the borrower, to protect the interests of the lender.

Corporate Taxes

Taxes imposed on the income or profit of corporations by the government.