Rank the Following Bonds, from Highest to Lowest Interest Rate

question 111

Multiple Choice

Rank the following bonds, from highest to lowest interest rate risk: 2-year zero coupon, 2-year 5% coupon bond, 30-year 5% coupon bond, 30-year, zero coupon bond.

• A) 30-year, zero coupon bond, 30-year 5% coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond
• B) 2-year 5% coupon bond, 2-year zero coupon bond, 30-year 5% coupon bond, 30-year zero coupon bond
• C) 30-year, zero coupon bond, 30-year 5% coupon bond, 2-year zero coupon bond, 2-year 5% coupon bond
• D) 30-year, 5% coupon bond, 30-year zero coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond

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Definitions:

Mantle Plume

A rising column of hot, solid mantle material that originates from deep within the Earth, potentially causing volcanic activity when it reaches the surface.

Less Dense

This term refers to a material that has a lower density, meaning fewer mass units per volume, making it more buoyant or likely to float in a denser substance.

Mostly Molten

Refers to the state of material that is primarily in a liquid form due to high temperatures, often relating to the Earth's mantle.

Decompression Melting

The process by which melting occurs in the mantle due to a decrease in pressure as hot mantle rocks rise closer to the Earth's surface.