Which of the following set of conditions will result in a bond with the greatest price volatility?

Question

Quizplus · Accepted Answer

A bond with a low coupon and a long maturity will have the greatest price volatility because it will be more sensitive to changes in interest rates. A lower coupon means that the bond's cash flows are less than the prevailing interest rate, making it less attractive to investors. A longer maturity increases the bond's sensitivity to changes in interest rates, as the discount factor applied to the cash flows is greater. Therefore, any changes in interest rates will have a more substantial impact on the bond's price, resulting in greater price volatility.

Which of the Following Set of Conditions Will Result in a Bond