If interest rates go up, the price of which bond would fall by more: a

Finance Jun 22, 2021

If interest rates go up, the price of which bond would fall by more:

a. a 20 year to maturity 8 percent coupon bond or

b. a 1 year to maturity 8 percent coupon bond?

(No calculation needed)

Expert Solution

The bond with higher duration are more sensitive to changes in interest rates. Hence, the price of bond with higher duration will be affected more. So, the correct option is A "a 20 year to maturity 8 percent coupon bond".

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