Rank the Interest Sensitivity of the Following from Most Sensitive

question 28

Multiple Choice

Rank the interest sensitivity of the following from most sensitive to an interest rate change to the least sensitive.
I.8% coupon,noncallable 20 year maturity,par bond
II.9% coupon,currently callable 20 year maturity,premium bond
III.Zero coupon,30 year maturity bond

• A) I, II, III
• B) II, III, I
• C) III, I, II
• D) III, II, I

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Definitions:

Private Companies

Privately held entities that are owned by individual investors, families, or a small group of shareholders, not available for public trading.

Market Interest Rate

The prevailing rate of interest available in the market for securities of similar risk and maturity.

Effective Interest Rate

The actual return on investment or cost of a loan, taking into account the compounding of interest, as opposed to the nominal rate.

Stated Interest Rate

The annual interest rate declared on a loan or investment, not taking into account compounding or fees.