Which of the following bonds has the longest duration?
A) A 15-year maturity, 0% coupon bond.
B) A 15-year maturity, 9% coupon bond.
C) A 20-year maturity, 9% coupon bond.
D) A 20-year maturity, 0% coupon bond.
E) Cannot tell from the information given

Question

Quizplus · Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates, and it generally increases with time to maturity and decreases with the bond's coupon rate. A 20-year maturity, 0% coupon bond (D) has the longest duration because it pays no coupons and returns all its value at maturity, making it the most sensitive to interest rate changes.

Which of the Following Bonds Has the Longest Duration