Relative to bond C, for a 200 basis point decrease in the required rate of return, bond b will most likely exhibit a(n):
A) equal percentage price change.
B) greater percentage price change.
C) smaller percentage price change.

Question

Quizplus · Accepted Answer

Bond b has a longer duration than bond C, meaning it is more sensitive to changes in interest rates. A 200 basis point decrease in required rate of return will have a greater impact on bond b's price than on bond C's price, resulting in a greater percentage price change for bond b relative to bond C.

Relative to Bond C, for a 200 Basis Point Decrease