Rank the following bonds, from highest to lowest interest rate risk: 2-year zero-coupon, 2-year 5 percent coupon bond, 30-year 5 percent coupon bond, 30-year, zero-coupon bond.
A)30-year, zero-coupon bond, 30-year 5 percent coupon bond, 2-year 5 percent coupon bond, 2-year zero-coupon bond
B)2-year 5 percent coupon bond, 2-year zero-coupon bond, 30-year 5 percent coupon bond, 30-year zero-coupon bond
C)30-year, zero-coupon bond, 30-year 5 percent coupon bond, 2-year zero-coupon bond, 2-year 5 percent coupon bond
D)30-year, 5 percent coupon bond, 30-year zero-coupon bond, 2-year 5 percent coupon bond, 2-year zero-coupon bond

Question

Quizplus · Accepted Answer

Longer maturity bonds and zero-coupon bonds have higher interest rate risk. The 30-year zero-coupon bond has the highest risk, followed by the 30-year coupon bond, then the 2-year zero-coupon bond, and finally the 2-year coupon bond.

Rank the Following Bonds, from Highest to Lowest Interest Rate