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

question 62

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 20-year bond with a $1 000 face value whose coupon rate is 7.4% APR paid semi-annually
• B)a 20-year bond with a $1 000 face value whose coupon rate is 5.8% APR paid semi-annually
• C)a 10-year bond with a $1 000 face value whose coupon rate is 5.8% APR paid semi-annually
• D)a 10-year bond with a $1 000 face value whose coupon rate is 7.4% APR paid semi-annually

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Definitions:

Dividend Growth

The rate at which a company's dividend payments increase over time, often used as an indicator of financial health and future performance.

Weighted Average Cost of Capital (WACC)

An estimation of a company's capital cost where each type of capital is weighted according to its proportion.

Dividend Growth Rate

The annualized percentage rate of growth of a company's dividend payments to shareholders.

Market Risk Premium

The additional return an investor expects to receive from an equity investment over the risk-free rate, as compensation for taking on higher risk.