All other things equal, which of the following has the longest duration?
A) A 20-year bond with a 10% coupon yielding 10%
B) A 20-year bond with a 10% coupon yielding 11%
C) A 20-year zero-coupon bond yielding 10%
D) A 21-year bond with a 10% coupon yielding 10%

Question

Quizplus · Accepted Answer

The zero-coupon bond has the longest duration as it has no coupon payments that could offset the price changes resulting from interest rate movements. The longer the maturity of a bond, the higher is its duration, which is a measure of interest rate sensitivity. Therefore, options A, B, and D have a lower duration than option C.

All Other Things Equal, Which of the Following Has the Longest