You expect interest rates to decline and wish to capitalize on the anticipated changes in bond prices. To realize your maximum gain, all else constant, you should purchase _____ bonds.

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Quizplus · Accepted Answer

Long-term, zero-coupon bonds are most sensitive to changes in interest rates, meaning their prices increase more than those of other bonds when interest rates decline. This is due to their longer duration and lack of periodic interest payments, which amplifies the effect of interest rate changes on their present value.

You Expect Interest Rates to Decline and Wish to Capitalize