Taking Stock and Making Hay: Archival Collections Assessment

The inverse relationship between coupon rate and price sensitivity results from the distribution of cash flows. Compared to a lower coupon bond, more of the total cash flow of a high coupon security will come from interest payments. Interest payments are received throughout the life of the bond, which means that, relative to a lower coupon bond, a higher coupon bond will have a higher proportion of its cash flow returned sooner. The earlier the cash flow occurs, the less price sensitive its cash flow is. As discussed above, longer maturity cash...