Two bonds with different coupon amounts are priced to yield the same yield to maturity. For a given change in market rate:
A) the bond with the lower coupon will always change more in price than the bond with the higher coupon.
B) the bond with the higher coupon will always change more in price than the bond with the lower coupon.
C) the bond with the lower coupon rate will only change more in price than the bond with the higher coupon rate if the market rate decreases.
D) The bond with the higher coupon rate will only change more in price than the bond with the lower coupon rate if the market rate increases.
E) the price change will be the same for both bonds.

Question

Quizplus · Accepted Answer

Bonds with lower coupons have longer durations, meaning they are more sensitive to changes in interest rates, and thus their prices change more for a given change in market rates compared to higher coupon bonds.

Two Bonds with Different Coupon Amounts Are Priced to Yield