Final answer:
Yes, a semiannual coupon bond is more sensitive than one with an annual coupon.
Step-by-step explanation:
Yes, a semiannual coupon bond is more sensitive than one with an annual coupon.
Sensitivity of a bond refers to the bond's price response to changes in interest rates. The sensitivity of a bond is measured by its duration, which is a measure of how long it takes to recover the bond's price given a change in interest rates. Generally, bonds with shorter durations are more sensitive to interest rate changes.
A semiannual coupon bond pays interest twice a year, while an annual coupon bond pays interest once a year. Since a semiannual coupon bond pays interest more frequently, it has shorter cash flows and a shorter duration. Therefore, a semiannual coupon bond is more sensitive to interest rate changes compared to one with an annual coupon.