If the yield to maturity decreased 1 percentage point, which of the following bonds would have the largest percentage increase in value?
A) A 1-year bond with an 8 percent coupon.
B) A 1-year zero-coupon bond.
C) A 10-year zero-coupon bond.
D) A 10-year bond with an 8 percent coupon.
E) A 10-year bond with a 12 percent coupon.

Question

Quizplus · Accepted Answer

Longer duration bonds, like the 10-year zero-coupon bond, are more sensitive to interest rate changes, leading to a larger percentage increase in value when yields decrease.

If the Yield to Maturity Decreased 1 Percentage Point, Which