Which of the following bonds will be least sensitive to a change in interest rates?
A) a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually
B) a 15-year bond with a $5,000 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 $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually
D) a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually

Question

Quizplus · Accepted Answer

The bond A has a lower duration due to its shorter maturity and matching coupon rate and yield to maturity, which decreases its sensitivity to changes in interest rates. The other bonds have longer maturities and/or coupon rates that are not matched to their yield to maturity, causing them to have higher durations and be more sensitive to interest rate changes.

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