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

question 4

Multiple Choice

Which of the following bonds will be most sensitive to a change in interest rates?

• A)a 110-year bond with a $2 000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semi-annually
• B)a 30-year bond with a $1 000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually
• C)a 15-year bond with a $5 000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually
• D)a 20-year bond with a $3 000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semi-annually

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Definitions:

Market Price

The present value at which a service or asset is available for purchase or sale within a specific market.

Market Demand

The total quantity of a good or service that consumers in a market are willing and able to purchase at different prices.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity has a significant impact on the market prices.

Average Variable Cost

The total variable cost per unit of output, calculated by dividing total variable costs by the quantity of output produced.