Assume that a 10-year Treasury bond has a 12% annual coupon, while a 15-year T-bond has an 8% annual coupon.Assume also that the yield curve is flat, and all Treasury securities have a 10% yield to maturity.Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

Given a flat yield curve with all securities yielding 10%, a bond's price movement in response to interest rate changes depends on its duration. Longer-term bonds, like the 15-year in this case, have higher duration and are more sensitive to interest rate changes than shorter-term bonds, like the 10-year. Therefore, if interest rates decline, both bonds' prices will increase, but the 15-year bond will have a larger percentage increase due to its longer duration and greater sensitivity to interest rate changes.

Assume That a 10-Year Treasury Bond Has a 12% Annual