Why is a zero coupon bond more sensitive to interest rates than just a coupon bond?
It doesnt really make sense to me, any ideas? thanks!
Trending Content - Investment Banking Forum
| +157 | ONLY THESE BANKS OR YOU STRUCK OUT | 39 | 5h |
| +128 | Why UBS Is the Worst Place to Start Your IB Career | 17 | 6m |
| +115 | IB Energy Drink Tier List / Ranking | 74 | 4h |
| +65 | Firm Thinks I'm Lying About Offer | 20 | 4h |
| +54 | Indiana University Fraternity Pipelines | 34 | 3h |
| +39 | Stay at Weak Dealflow Team or Lateral? | 12 | 1d |
| +37 | Rogo AI | 17 | 24m |
| +36 | Elite Boutique interview questions | 8 | 1d |
| +34 | Suspended for a Year | 12 | 2h |
| +23 | 1st Half 2026 (1H26) RX IB & RX Co. Rankings | 14 | 2d |
Career Resources
The cash you receive - just one big payment when the bond matures - is far out in time, so the present value of that cash flow is more sensitive to changes in the discount rate than a regular bond, whose interest payments come before maturity i.e. earlier in time which is why those cash flows are less sensitive to changes in the discount rate.
Got it! Thanks!!!!
Indeed, key word is duration (look it up if you're not familiar); a zero coupon bond will always have duration equal to maturity, which makes it more sensitive to interest rate changes. A coupon paying bond will have a duration lower than it's years to maturity because you receive cash flow in the meantime
Eum aut ipsam dolorem alias. Commodi hic enim magni. Sapiente nihil enim commodi dolor.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...