The prices of bonds with ____ are most sensitive to interest rate movements.

Question

Quizplus · Accepted Answer

Zero coupon bonds do not make any periodic coupon payments and therefore their prices are more sensitive to interest rate movements compared to bonds with coupon payments. This is because the majority of their return comes from the difference between the purchase price and the face value, which is fixed at maturity. As interest rates change, this difference becomes more or less valuable, resulting in a greater impact on the price of the bond compared to bonds with coupon payments.

The Prices of Bonds with ____ Are Most Sensitive to Interest