Which of the following bonds will be least 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 25-year bond with $4000 face value whose yield to maturity is 6.2% and coupon rate is 5.6% APR paid annually

Question

Quizplus · Accepted Answer

Bonds with shorter maturities and higher coupon rates are generally less sensitive to interest rate changes. Among the options, the ten-year bond with a coupon rate equal to its yield to maturity (5.8%) will be least sensitive because it has the shortest duration and its coupon payments and yield are aligned, reducing its price volatility in response to interest rate changes.

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