Which of the following bonds will have the greatest degree of interest-rate risk? A. A 10-year,...

Question

Question

Which of the following bonds will have the greatest degree of interest-rate risk?

A. A 10-year, 6% semi-annual coupon with a yield of 6%
B. A 10-year 5% semi-annual coupon with a yield of 6%
C. An 8-year, 6% semi-annual coupon with a yield of 6%
D. An 8-year, 5% semi-annual coupon with a yield of 6%

Answer 1

Answer #1

Bond with highest duration has highest interest rate risk

higher the tenure, higher the duration

lower coupon, higher duration

A & b has higher duration as it is 10 yr

B has lower coupon rate thsn A (5<6), so B has highest duration = highest interest rate risk

Answer 2

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