Bond prices change whenever the market interest rate changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is this statement true or false. Explain your answer by making up a "reasonable" example based on a 1-year and a 20-year bond to help answer the question.
Bond prices change whenever the market interest rate changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is this statement true or false. Explain your answer by making up a "reasonable" example based on a 1-year and a 20-year bond to help answer the question.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...
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