Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?
A) 2-year, 5 percent coupon bond
B) 30-year, 10 percent coupon bond
C) 10-year, zero-coupon
D) 30-year, zero-coupon

Question

Quizplus · Accepted Answer

The 30-year, zero-coupon bond will have the largest percentage increase in value if interest rates decrease by 1 percent because it has the longest duration and no coupon payments, making its price most sensitive to changes in interest rates.

Which of the Following Bonds Will Have the Largest Percentage