ndow Help chegg.com BUA Chapter 16 Flashcards 1 Quizlet Solved: Which of the bon

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ndow Help chegg.com BUA Chapter 16 Flashcards 1 Quizlet Solved: Which of the bonds A TEXTBOOK SOLUTIONS EXPERT O&A; mathx1.com FIN 302A (4) Homework: Chapter 6 Score: 0 of 1 p P 6-24 (similar to) 6016(3complete) HW Score: Ques Consider the following bonds: Bond Coupon Rate (annual payments) 0.0% 0.0% 3.5% 78% Maturity (years) 15 10 15 10 Which ofthe bonds A to D is most sensitive to a 1%drop in interest rates from 6 5% to55%? which bond is least sensitive? Bond : | is most sensitive. (Select from the drop-down menu.) Click to select your answerjs) and then click Check Answer

Explanation / Answer

More the duration of the bond, more the sensitivity to interest rate fluctuations. Thus out of the listed bonds, Bond A will have the highest duration of 15 years (zero coupon bonds have duration = maturity of the bond)

Thus Bond A is most sensitive

Now soupon paying bonds have lesset duration as compared to 0 coupon bonds. Since bond D pays a larger coupon and also has maturity date less than bond C, Bond will have least duration among the bonds listed. Thus Bond D will be least sensitive to the change in the interest rate.

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