hard · CFA Level I fixed-income
Ironvale Mining has two bonds outstanding. Bond A is a 10-year zero-coupon bond. Bond B is a 30-year bond with a 12% annual coupon. Both currently yield 6.0%.
Which bond will experience a greater percentage price increase if yields for all maturities fall to 5.0%?
- Both will increase by exactly 10%, consistent with their maturities.
- Bond A, because zero-coupon bonds always have the highest duration.
- Bond B, because its duration is higher than Bond A.
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