Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1%?

Question

Quizplus · Accepted Answer

Zero coupon bonds have a higher sensitivity to changes in interest rates than coupon bonds, and longer-term bonds have a higher sensitivity than shorter-term bonds. Therefore, the 30-year, zero coupon bond would have the largest percentage increase in value if interest rates decrease.

Which of the Following Bonds Will Have the Largest Percentage