Which of the Following Bonds Will Be Most Sensitive to a Change

question 24

Multiple Choice

Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?

• A)a ten-year bond with a $1000 face value whose coupon rate is 5.8% APR paid semi-annually
• B)a ten-year bond with a $1000 face value whose coupon rate is 7.4% APR paid semi-annually
• C)a 20-year bond with a $1000 face value whose coupon rate is 5.8% APR paid semi-annually
• D)a 20-year bond with a $1000 face value whose coupon rate is 7.4% APR paid semi-annually
• E)a 15-year bond with a $1000 face value whose coupon rate is 6.6% APR paid semi-annually

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Definitions:

Money Market Instruments

Short-term debt securities issued by financial institutions, companies, and governments.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

Shareholder

An individual or institution that owns one or more shares of stock in a public or private corporation, giving them a right to a portion of the company's profits and assets.

Net Saver

A net saver is an individual or entity that saves more money than they spend, often contributing to a surplus in personal or national savings.