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Which of the following set of conditions will result in a bond with the greatest price volatility?
A) a high coupon and a short maturity
B) a high coupon and a long maturity
C) a low coupon and a short maturity
D) a low coupon and a long maturity
Price Volatility
The rate at which the price of an asset increases or decreases for a given set of returns, indicative of the risk or stability.
High Coupon
Bonds or debt securities that offer a higher interest rate compared to the market average.
Long Maturity
Long maturity refers to bonds or other fixed-income securities with a longer period until their expiry date, typically associated with greater sensitivity to interest rate changes.
- Evaluate the relationship between coupon rate, maturity, yield to maturity, and their effects on bond duration and price instability.
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Learning Objectives
- Evaluate the relationship between coupon rate, maturity, yield to maturity, and their effects on bond duration and price instability.
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