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:

Ise Jingu

A Shinto shrine in Japan, considered one of the most sacred, dedicated to the sun goddess Amaterasu and renowned for its tradition of rebuilding every 20 years.

Honden

Main hall of a Shinto sanctuary.

Early Granary

A storage facility of ancient or early historical periods used for preserving grains and agricultural produce, crucial for sustaining sedentary societies.

Ise Shrine

A Shinto shrine in Japan, dedicated to the goddess Amaterasu, characterized by its unique architecture and tradition of rebuilding every 20 years.