Holding other factors constant, which one of the following bonds has the smallest price volatility?
A) 5-year, 0% coupon bond
B) 5-year, 12% coupon bond
C) 5 year, 14% coupon bond
D) 5-year, 10% coupon bond
E) Cannot tell from the information given

Question

Quizplus · Accepted Answer

Bonds with higher coupon rates generally have lower price volatility because they provide more frequent and larger cash flows, reducing the bond's sensitivity to interest rate changes. Among the given options, the 5-year, 14% coupon bond has the highest coupon rate, thus the smallest price volatility.

Holding Other Factors Constant, Which One of the Following Bonds