Which of the following statements is CORRECT?
A) A zero coupon bond of any maturity will have more interest rate price risk than any coupon bond, even a perpetuity.
B) If their maturities and other characteristics were the same, a 5% coupon bond would have more interest rate price risk than a 10%
Coupon bond.
C) A 10-year coupon bond would have more reinvestment rate risk than a 5-year coupon bond, but all 10-year coupon bonds have the same
Amount of reinvestment rate risk.
D) A 10-year coupon bond would have more interest rate price risk than a 5-year coupon bond, but all 10-year coupon bonds have the same
Amount of interest rate price risk.
E) If their maturities and other characteristics were the same, a 5% coupon bond would have less interest rate price risk than a 10% coupon bond.

Question

Quizplus · Accepted Answer

A lower coupon bond (5%) has more interest rate price risk than a higher coupon bond (10%) because the lower coupon bond's cash flows are more heavily weighted towards the maturity date, making it more sensitive to interest rate changes.

Which of the Following Statements Is CORRECT