Question

Which one of the following bonds has the least interest rate risk? 1) 3-year, 0 percent coupon 2) 6-year, 0 percent coupon 3)
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Answer #1

Ans- Option 4, 3-year and 6% coupon

The lower the no of years to maturity the lower the Interest rate risk as in less period there will be less probability of Interest rate change. While Zero Coupon Bond carry higher Interest rate risk than the Non-Xero coupon Bond.

Thus, 6% Coupon with 3-year carry least Interest rate risk

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