Question

Which one of the following bonds is the least sensitive to interest rate risk?

Multiple Choice

a. 3-year; 4 percent coupon

b. 3-year; 6 percent coupon

c. 5-year; 6 percent coupon

d. 7-year; 6 percent coupon

e. 7-year; 4 percent coupon

New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $1,022. Interest is paid semiannually. What is the yield to maturity?

Multiple Choice

a. 6.36 percent

b. 6.42 percent

c. 5.61 percent

d. 5.74 percent

e. 5.18 percent

Sunset Sales has 6.8 percent coupon bonds on the market with 11 years left to maturity. The bonds make semiannual payments and currently sell for 98.6 percent of par. What is the effective annual yield?

Multiple Choice

a. 7.24 percent

b. 7.19 percent

c. 7.33 percent

d. 7.11 percent

e. 7.07 percent

Answer 1

1)

Bond with both Lowest years to maturity and highest coupon rate will have least sensitivity to interest rate risk.

Hence, correct option is “b. 3-year; 6 percent coupon”

  

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