Of the following bonds, which has the greatest price volatility?
A) Zero-coupon bond with 5 years to maturity.
B) Corporate bond fund.
C) AA corporate bond with 7 years to maturity.
D) Zero-coupon bond with 15 years to maturity.
Answer: The longer the duration of a bond, the greater the volatility will be of its market price when interest rates change. Because zero-coupon bonds do not make interest payments but are priced at a deep discount to par value, they are more volatile than coupon-bearing bonds.