Bonds are more interest sensitive: I) the higher the coupon rate
II) the lower the coupon rate
III) the longer the time to maturity
IV) the shorter the time to maturity

Question

Quizplus · Accepted Answer

Bond prices are inversely related to interest rates. Lower coupon rates will make the bond more interest sensitive because there is less income being generated from the bond to offset any decrease in price due to a rise in interest rates. Longer time to maturity also makes the bond more interest sensitive because there is more time for interest rate changes to have an impact on the bond price. Therefore, the correct choice is II and III.

Bonds Are More Interest Sensitive: I) the Higher the Coupon