Which bond would most likely possess the highest degree of interest rate risk?

A) 8% coupon rate, 10 years to maturity
B) 8% coupon rate, 20 years to maturity
C) 10% coupon rate, 10 years to maturity
D) 10% coupon rate, 20 years to maturity
E) 12% coupon rate, 20 years to maturity

Question

Rohit Parab · Accepted Answer

Final Answer : B, Explanation :  Interest rate risk increases with the length of time to maturity. Among the options, the bond with an 8% coupon rate and 20 years to maturity (option B) would have the highest degree of interest rate risk because it has the longest duration and a lower coupon rate compared to the other long-duration option (option E), making it more sensitive to interest rate changes. Higher coupon rates generally decrease a bond's sensitivity to interest rate changes, making options with lower coupon rates and longer maturities more susceptible to interest rate risk.

Which bond would most likely possess the highest degree of interest rate risk?

A) 8% coupon rate, 10 years to maturity
B) 8% coupon rate, 20 years to maturity
C) 10% coupon rate, 10 years to maturity
D) 10% coupon rate, 20 years to maturity
E) 12% coupon rate, 20 years to maturity

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Which bond would most likely possess the highest degree of interest rate risk?A) 8% coupon rate, 10 years to maturityB) 8% coupon rate, 20 years to maturityC) 10% coupon rate, 10 years to maturityD) 10% coupon rate, 20 years to maturityE) 12% coupon rate, 20 years to maturity

Definitions

Learning Objectives

Learning Objectives

Related questions

Which bond would most likely possess the highest degree of interest rate risk?

A) 8% coupon rate, 10 years to maturity
B) 8% coupon rate, 20 years to maturity
C) 10% coupon rate, 10 years to maturity
D) 10% coupon rate, 20 years to maturity
E) 12% coupon rate, 20 years to maturity