Which of the following bonds will be most sensitive to a change in interest rates?
A)a ten-year bond with a $2000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semi-annually
B)a 15-year bond with a $5000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually
C)a 20-year bond with a $3000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semi-annually
D)a 30-year bond with a $1000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually
E)a five-year bond with a $10,000 face value whose yield to maturity is 6.4% and coupon rate is 6.8% APR paid annually

Question

Quizplus · Accepted Answer

The 30-year bond with a 5.5% yield to maturity and a 6.4% coupon rate paid annually (D) will be most sensitive to a change in interest rates because it has the longest duration. Longer duration bonds are more sensitive to interest rate changes.

Which of the Following Bonds Will Be Most Sensitive to a Change