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SIE: Debt Securities
SIE practice questionmediumDuration

Which bond will be MOST sensitive to interest rate changes?

  1. AA 5-year high-coupon bond
  2. BA 20-year zero-coupon bond✓ Correct answer
  3. CA 10-year Treasury note
  4. DA 20-year bond with annual coupons
Explanation

Why BA 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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