CFA Practice Question

CFA Practice Question

Bonds A, B and C have the same maturity and face value. They have coupons of 5.4%, 5.5% and 5.7% respectively. Prices of $105, $104, and $102. Yields of 5.44%, 5.42% and 5.45% respectively. Which is the bond with the highest interest rate risk?
A. A
B. C
C. B
Explanation: The bond with the lowest coupon has the highest interest rate risk, as more of value is from the principal repayment at maturity. That is, more of the value is farther out.

User Contributed Comments 1

User Comment
ConnerVP1 Bond A has a yield greater than it's coupon but is priced at a premium......fishy
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