Asked by Nacole Watkins on Jun 24, 2024
Verified
For two bonds identical but for coupon, the market price of the lower coupon bond will change more (in percentage terms) than that of the higher coupon bond for a given change in market interest rates.
Coupon
The interest rate stated on a bond that represents the amount of interest the bondholder will receive.
Market Price
The current price at which an asset or service can be bought or sold in a market, influenced by supply and demand.
- Recognize the relationship between bond prices, coupon rates, and market interest rates.
Verified Answer
JC
Jennell CrespoJun 26, 2024
Final Answer :
True
Explanation :
Lower coupon bonds have longer durations, making them more sensitive to changes in interest rates, causing their prices to fluctuate more in percentage terms than higher coupon bonds for a given change in market interest rates.
Learning Objectives
- Recognize the relationship between bond prices, coupon rates, and market interest rates.