Asked by Tehseen Fatima on Mar 10, 2024
Verified
Rank the interest sensitivity of the following from the most sensitive to an interest rate change to the least sensitive:
I. 8% coupon, noncallable 20-year maturity par bond
II. 9% coupon, currently callable 20-year maturity premium bond
III. Zero-coupon 30-year maturity bond
A) I, II, III
B) II, III, I
C) III, I, II
D) III, II, I
Interest Sensitivity
The degree to which the price of a financial asset responds to changes in interest rates.
Coupon
In finance, a coupon refers to the annual interest payment made to bondholders, expressed as a percentage of the bond’s face value.
Callable
A bond or other financial security feature that allows the issuer to buy back the security before its maturity date.
- Determine the elements that influence the volatility of bond prices.
Verified Answer
Learning Objectives
- Determine the elements that influence the volatility of bond prices.
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