Which of the following two bonds is more price sensitive to changes in interest rates
1) A par value bond, D, with a 2-year-to-maturity and a 8% coupon rate.
2) A zero-coupon bond, E, with a 2-year-to-maturity and a 8% yield to maturity.
A)Bond D because of the higher yield to maturity.
B)Bond E because of the longer duration.
C)Bond D because of the longer time to maturity.
D)Both have the same sensitivity because both have the same yield to maturity.

Question

Quizplus · Accepted Answer

Duration is the best measure of bond price sensitivity; the longer the duration the higher the price sensitivity.

Which of the Following Two Bonds Is More Price Sensitive