Holding Other Factors Constant, Which One of the Following Bonds

question 46

Multiple Choice

Holding other factors constant, which one of the following bonds has the smallest price volatility?

• A) 7-year, 0% coupon bond
• B) 7-year, 12% coupon bond
• C) 7 year, 14% coupon bond
• D) 7-year, 10% coupon bond
• E) Cannot tell from the information given

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Definitions:

Residual Interest

The interest remaining in a trust or estate once all prior obligations, claims, or interests have been satisfied.

Equity Instrument

Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Derivative Instrument

A financial contract whose value is derived from the value of an underlying asset, index, or rate.

Liabilities

Financial obligations of a business, including money owed to creditors or suppliers.