If Interest Rates Fall from 8 Percent to 7 Percent

question 99

Multiple Choice

If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value?

• A) A 10-year zero coupon bond.
• B) A 10-year bond with a 10 percent semiannual coupon.
• C) A 10-year bond with a 10 percent annual coupon.
• D) A 5-year zero coupon bond.
• E) A 5-year bond with a 12 percent annual coupon.