Which of the Following Two Bonds Is More Price Sensitive

question 78

Multiple Choice

Which of the following two bonds is more price sensitive to changes in interest rates
1) A par value bond, A, with a 12-year-to-maturity and a 12% coupon rate.
2) A zero-coupon bond, B, with a 12-year-to-maturity and a 12% yield to maturity.

• A)Bond A because of the higher yield to maturity.
• B)Bond A because of the longer time to maturity.
• C)Bond B because of the longer duration.
• D)Both have the same sensitivity because both have the same yield to maturity.
• E)None of the options

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Definitions:

Distributive Justice

The perceived fairness of the distribution of resources within a society or organization.

Utilitarianism

An ethical theory that suggests the best action is the one that maximizes utility, typically defined as that which produces the greatest well-being of the greatest number of people.

Uncertainty Avoidance

A cultural dimension that describes the extent to which people in a society are uncomfortable with ambiguity, uncertainty, and unstructured situations.

Role Perceptions

An individual’s view and understanding of the responsibilities, behaviors, and actions required by their role within an organizational context.