Which of the following bonds will have the largest decrease in price if interest rates increase...
Which of the following bonds will have the largest decrease in price if interest rates increase in Year 1 of the life of the bonds?
A. An option free 11-year 9% coupon bond selling at a discount.
B. A 10-year 5% coupon bond that is callable at 104 in three years.
C. A 7-year 4% coupon bond that is puttable after two years.
D. A 10-year zero coupon bond.
Homework Answers
Option D A 10 year zero coupon bond
When rates rise, price of callable bonds behave the same way as normal bonds
When rates rise, price of puttable bonds decrease less than normal bonds
Discount bond has lesser duration than zero coupon bond hence they fall less
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Which of the following bonds will have the largest decrease in
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