An investor's portfolio contains the following four bonds: ABC 7% duein 2040 DEF 6% due in 2040 GHI 5% due in 2040 JKL 8% due in2040
Which of these bonds would show the greatest price change if interest rates jumped by one percentage point?

GHI Bonds

Explanation:

All the bonds are of equal maturity so the only relevant variable is the bond yield.

Bond prices are inversely related to the market interest rate for the simple reason that bond yield is fixed. As a result when interest rates go up, they will become less attractive because they will be paying older and lower rates than the newer rates.

This is especially true for bonds with lower yields which is why GHI Bonds will show the greatest change in price.

For instance, suppose interest rates in the economy were 6% and increased to 8%, the attractiveness of the 5% bond would decrease the most because there is a chance to earn 3% more in the market than from that bond.

the first one $24,630

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