You are watching: Which of the following bonds has the greatest price risk?
A 10-year, $1,000 confront worth, zero coupon bond.
Zero coupon bonds are marketed at a deep discount, and also execute not pay coupons, just pay the complete par worth price at maturity.
Zero coupon bonds are riskier than various other types of bonds bereason they are topic to interest tax risk: this suggests that even if the bond does not pay coupons, the IRS still computes an imputed interemainder that the bond would have actually received, and also charges an earnings tax over it.
If the bondholder of a zero coupon sells the bond prior to maturity, the danger of having actually paid more in both revenue taxes on imputed intersest, plus the initial price of the bond itself, than the obtain from the sale, is incredibly high.
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