Homework Answers
Correct choice is > III, I, II
Reason:
Bonds are sensitive because they are influenced by market interest rate and second is because of their of maturity period.
III) Zero-coupon bonds with long duration to mature will be more sensitive to interest rate because the only cash flow which will be discounted and longer year to maturity imposes higher discounting factor
I) 20 years maturity is one prime reason and second is non callable bonds allows market influence on bond which ensures it will not be callable before set 20 years.
II) Currently callable feature makes it less sensitive to interest rate change in market because it is not certain that bond will last for 20 years. It is at will of issuer to redeem when interest rates are high
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