The Price Sensitivity of a Bond Increases in Response to a Change

question 114

Multiple Choice

The price sensitivity of a bond increases in response to a change in the market rate of interest as the:

• A) coupon rate increases.
• B) time to maturity decreases.
• C) coupon rate decreases and the time to maturity increases.
• D) time to maturity and coupon rate both decrease.
• E) coupon rate and time to maturity both increase.

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Definitions:

Spot Price

The current market price at which a particular asset, like a commodity, currency, or security, can be bought or sold for immediate delivery.

Futures Price

The agreed-upon price for a financial instrument or commodity to be sold or bought at a future date, used primarily in futures contracts trading.

Convergence Property

The characteristic of a mathematical series or economic model to approach a limit or a stable point over time.

Maturity

The date on which the principal amount of a bond, loan, or other financial instrument becomes due and is to be paid in full.