Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds would have the LARGEST percentage increase in price?

Question

Quizplus · Accepted Answer

The longer the maturity of a bond, the more its price will be affected by changes in interest rates. Additionally, zero coupon bonds are more sensitive to changes in interest rates than coupon-paying bonds. Therefore, the 10-year zero coupon bond would have the largest percentage increase in price.

Assume That All Interest Rates in the Economy Decline from 10