If interest rates fall from 8 percent to 7 percent, which of the following bonds will have

Question:

If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value.

a. A 10-year zero coupon bond.

b. A 10-year bond with a 10 percent semiannual coupon.

c. A 10-year bond with a 10 percent annual coupon.

d. A 5-year zero coupon bond.

e. A 5-year bond with a 12 percent annual coupon.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...