SIE Exam Question 345: Answer and Explanation

Question: 345

Which of the bonds listed below would have the greatest price volatility?

• A. A long-term zero-coupon bond
• B. A short-term investment grade bond
• C. A Treasury note
• D. A variable rate bond

Correct Answer: A

Explanation:

A - Because zero coupon bonds pay no interest until maturity, their prices fluctuate more than other types of bonds in the secondary market. Variable bonds have little price fluctuation because their rates adjust to current interest rates. Also, long-term bonds are generally more volatile than short-term bonds.