Which of the following bonds has the greatest interest rate price risk?
A) A 10-year, $1,000 face value, zero coupon bond.
B) A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.
C) All 10-year bonds have the same price risk since they have the same maturity.
D) A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.
E) A 10-year $100 annuity.

Question

Quizplus · Accepted Answer

Zero coupon bonds have the greatest interest rate price risk because they do not pay periodic interest, and their entire value is received at maturity, making them more sensitive to interest rate changes.

Which of the Following Bonds Has the Greatest Interest Rate