In: Finance
Which of the following bond would have the greatest price volatility?
A) 6%, 3-year bond
B) 6%, 10-year bond
C) 3%, 3-year bond
D) 9%, 10-year bond
First of all , longer maturity bonds are more sensitive to change in interest rates.
so A and C are not the answers
Now, with longer maturity bonds but with lower coupon rates are more sensitive to changes in interest rates.
So answer is : B) 6%, 10 year bond
Answer : B) 6%, 10 year bond
I am also attaching a screenshot for verification.