Question

2.3 You have been provided with the following options.
a. A 10-year, R1000 face value, 10 percent coupon bond with semiannual interest payments.
b. A 10-year, R1000 face value, 10 percent coupon bond with annual interest payments.
c. A 10-year, R1000 face value, zero coupon bond. d. A 10-year R100 annuity.
(3 points) Determine which one poses the highest price risk.

Answer 1

c. Because this option generates income in 10 years, while the other options have annual income.