Which of the following bonds would be likely to exhibit a greater degree of interest rate risk?
A) A zero-coupon bond with 20 years until maturity
B) A coupon-paying bond with 20 years until maturity
C) A floating-rate bond with 20 years until maturity
D) A zero-coupon bond with 30 years until maturity

Question

Quizplus · Accepted Answer

Zero-coupon bonds typically exhibit greater interest rate risk because they have no coupon payments to offset changes in market interest rates, and their price movements are more sensitive to changes in interest rates compared to coupon-paying bonds. Additionally, longer-term bonds tend to have greater interest rate risk, so the combination of a zero-coupon bond with a longer-term maturity makes this option the most likely to exhibit greater interest rate risk.

Which of the Following Bonds Would Be Likely to Exhibit