Asked by Kennedy McCarthy on May 12, 2024
Verified
All else equal, bond price volatility is greater for ________.
A) higher coupon rates
B) lower coupon rates
C) shorter maturity
D) lower default risk
Coupon Rates
The annual interest rate paid by bond issuers to the bondholders, usually fixed throughout the life of the bond.
Price Volatility
A statistical measure of the dispersion of returns for a given security or market index, indicating how much and how quickly the value of an asset changes.
- Ascertain the contributors to fluctuations in bond prices.
Verified Answer
KN
Kendra NewmanMay 13, 2024
Final Answer :
B
Explanation :
Lower coupon rates result in greater sensitivity of bond prices to changes in interest rates, leading to higher price volatility. Higher coupon rates make bonds less sensitive to interest rate changes, resulting in lower price volatility. Maturity and default risk also affect bond price volatility, but the question only asks for the best choice, which is option B.
Learning Objectives
- Ascertain the contributors to fluctuations in bond prices.
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