Bond prices are ________ sensitive to changes in yield when the bond is selling at a ________ initial yield to maturity.
A) more; lower
B) more; higher
C) less; lower
D) equally; higher or lower

Question

Quizplus · Accepted Answer

When a bond is selling at a lower initial yield to maturity, it means that the bond price is higher. This is because investors are willing to pay more for a bond that offers a lower yield. In such a case, the bond prices are more sensitive to changes in yield, i.e., a small change in yield will have a greater impact on the bond price. Therefore, the correct answer is A.

Bond Prices Are ________ Sensitive to Changes in Yield When