Rank the interest sensitivity of the following from most sensitive to an interest rate change to the least sensitive.
I.8% coupon,noncallable 20 year maturity,par bond
II.9% coupon,currently callable 20 year maturity,premium bond
III.Zero coupon,30 year maturity bond

Question

Quizplus · Accepted Answer

Zero coupon bonds (III) are most sensitive to interest rate changes due to their long duration. Noncallable bonds (I) have moderate sensitivity, while callable bonds (II) are least sensitive because the call feature limits price appreciation when rates fall.

Rank the Interest Sensitivity of the Following from Most Sensitive