Which of the following bonds will have the smallest percentage increase in value if all interest rates decrease by 1 percent? (a) 20-year, zero coupon bond

Finance Nov 20, 2020

Which of the following bonds will have the smallest percentage increase in value if all interest rates decrease by 1 percent? (a) 20-year, zero coupon bond. (b) 10-year, zero coupon bond. (c) 10-year, 5 percent coupon bond. (d) 20 year, 5 percent coupon bond.

Expert Solution

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Longer maturity bond will have higher % increase, also the Coupon Bond value will increase more than Zero Coupon Bond.

Therefore Option a is correct

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