Which one of the following bonds is the most sensitive to interest rate risk? 3-year: 4 percent coupon 7-year: 6 percent coupon 3-year: 6 percent coupon 7-year: 4 percent coupon

Finance Apr 19, 2021

Expert Solution

Bonds with the lowest coupon rate and highest years to maturity are most sensitive to changes in yield. So, from the options given above Option 4th has the lowest coupon rate (4 percent) and highest years to maturity (7 years). So, the correct option is 4th "7-Year; 4 Percent Coupon".

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