What we have not considered thus far is the volatility of interest rates. For example, as we explained in Chapter 2, all other factors equal, the higher the coupon rate, the lower the price volatility of a bond to changes in interest rates. In addition, the higher the level of yields, the lower the price volatility of a bond to changes in interest rates. This is illustrated in Exhibit 19 which shows the price/yield relationship for an option-free bond. When the yield level is high (Y_H , for example, in the exhibit), a change in interest rates does not produce a large change in the initial price. For example, as yields change from Y_H to Y_H ”, the price changes a small amount from P_H to P_H’. However, when the yield level is low and changes (Y_L to Y_L’ , for example, in the exhibit), a change in interest rates of the same number of basis points as Y_H to Y_H ” produces a large change in the initial price (P_L to P_L’).