Which bond would have the greatest percentage increase in value if all interest rates fall by 1%?

Question

Quizplus · Accepted Answer

Zero coupon bonds experience the greatest percentage increase in value when interest rates fall because all of their value is derived from the difference between the discounted purchase price and the face value (par value) received at maturity. Therefore, a decline in interest rates will result in a greater increase in the present value of the face value, resulting in a greater percentage increase in value for zero coupon bonds.

Which Bond Would Have the Greatest Percentage Increase in Value