SIE practice questionmediumDuration
Which bond will be MOST sensitive to interest rate changes?
- AA 5-year high-coupon bond
- BA 20-year zero-coupon bond✓ Correct answer
- CA 10-year Treasury note
- DA 20-year bond with annual coupons
Explanation
Why B — A 20-year zero-coupon bond
Long-term zero-coupon bonds have the highest duration, so are most sensitive to interest rate changes. Shorter terms and higher coupons reduce sensitivity.
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