An investor is considering Bond X and Bond Y, both with a 1,000 currency unit face value and 5 years to maturity. Bond X has a 5% coupon and Bond Y has a 12% coupon. If market interest rates suddenly rise by 1%, which bond's price will be more sensitive to this change and why?

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Mathematics · Financial Mathematics

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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Bond X will be more sensitive because lower coupon bonds have higher duration.

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Answer 1

Neither bond price will change because the coupon rates are fixed at issuance.

Answer 2

Both bonds will react identically as they have the same maturity date.

Answer 3

Bond X will be more sensitive because lower coupon bonds have higher duration.

Answer 4

Bond Y will be more sensitive because of the higher coupon payments.

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