Which of the following bonds will have the smallest percentage increase in value

Question

Which of the following bonds will have the smallest percentage increase in value if all market interest rates decrease by 1%? A.  20-year, zero coupon bond. B.  10-year, zero coupon bond. C.  20-year, 10% coupon bond. D.  20-year, 5% coupon bond. E.  1-year, 10% coupon bond.
Which of the following bonds will have the smallest percentage increase in value if all market interest rates decrease by 1%? A.  20-year, zero coupon bond. B.  10-year, zero coupon bond. C.  20-year, 10% coupon bond. D.  20-year, 5% coupon bond. E.  1-year, 10% coupon bond.

Explanation / Answer

Options.A) .20-year, zero coupon bond.

Bond is issued for taking long term loan. value of a bond is calculated by taking sum of the present value of cash flows in the remaining life of the bond. In coupon bond, cash inflows are coupon interest in each year.

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