Question

When other factors are constant, the interest-rate risk of a coupon bond is lower when the bond's:

1) Coupon rate is higher
2) Coupon rate is lower
3) Maturity period is longer
4) Maturity period is shorter

Answer 1

The interest-rate risk of a coupon bond is lower when the bond's coupon rate is higher.

Step-by-step explanation:

In the context of a coupon bond, the interest-rate risk refers to the risk that the bond's value will decrease when interest rates rise.

The interest-rate risk of a coupon bond is lower when the bond's coupon rate is higher. This is because a higher coupon rate means that the bondholder will receive a larger amount of interest payments, which helps offset any potential decrease in bond value due to rising interest rates.

Therefore, option 1) Coupon rate is higher is the correct answer.