Asked by De quoi tu as besoin on May 27, 2024
Verified
Identify the bond that has the longest duration (no calculations necessary) .
A) 20-year maturity with an 8% coupon
B) 20-year maturity with a 12% coupon
C) 20-year maturity with a 0% coupon
D) 10-year maturity with a 15% coupon
E) 12-year maturity with a 12% coupon
Bond Duration
The weighted average time until the cash flows of a bond are received, serving as an indicator of the bond's sensitivity to interest rate changes.
Coupon Rate
The annual interest rate paid by a bond issuer to its bondholders, typically expressed as a percentage of the bond's face value.
Maturity
The date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and payable.
- Analyze and differentiate the concepts of duration and interest-rate risk among various categories of bonds.
Verified Answer
GS
Gurkirat singhJun 01, 2024
Final Answer :
C
Explanation :
Bonds with longer maturities and lower coupon rates have longer durations. A 0% coupon bond (also known as a zero-coupon bond) pays no interest, which maximizes its duration among bonds with the same maturity. Therefore, a 20-year maturity with a 0% coupon has the longest duration.
Learning Objectives
- Analyze and differentiate the concepts of duration and interest-rate risk among various categories of bonds.