Price risk Answer: c Diff: M
28. Assume that all interest rates in the economy decline from 10 percent to 9 percent. Which of the following bonds will have the largest percentage increase in price?
a. A 10-year bond with a 10 percent coupon.
b. An 8-year bond with a 9 percent coupon.
c. A 10-year zero coupon bond.
d. A 1-year bond with a 15 percent coupon.
e. A 3-year bond with a 10 percent coupon.
Price risk Answer: c Diff: M
29. Which of the following has the greatest interest rate (price) risk?
a. A 10-year, $1,000 face value, 10 percent coupon bond with semiannual interest payments.
b. A 10-year, $1,000 face value, 10 percent coupon bond with annual interest payments.
c. A 10-year, $1,000 face value, zero coupon bond.
d. A 10-year $100 annuity.
e. All of the above have the same price risk since they all mature in 10 years.
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