Which of the Following Bonds Would Have the Greatest Percentage

question 29

Multiple Choice

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

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

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Definitions:

Equilibrium

A condition or state where supply equals demand, resulting in a stable market environment.

Currency Selection Return

The return attributed to the choice of currency in which investments are denominated.

EAFE

An abbreviation for Europe, Australasia, and Far East, representing a stock market index that gauges the equity market performance of developed markets outside of the U.S. and Canada.

Benchmark

A standard or reference by which others can be measured or judged, often used in finance to compare the performance of investments.