Generally,prices for zero coupon mortgage-backed bonds are more sensitive to interest rate changes than interest bearing MBBs.

Question

Quizplus · Accepted Answer

Zero coupon MBBs do not pay periodic interest payments, so their entire return is derived from the difference between their purchase price and face value. As a result, their prices are more sensitive to changes in market interest rates compared to interest bearing MBBs, which pay periodic interest payments that provide some stability to their total return.

Generally,prices for Zero Coupon Mortgage-Backed Bonds Are More Sensitive to Interest