Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 4, Problem 2Q

“Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices are more sensitive to interest rate changes than are long-term bond prices.” Is this statement true or false? Explain.

Expert Solution & Answer
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Summary Introduction

To discuss:  Whether the given statement is true or false.

Explanation of Solution

The prices of short term bond are less sensitive when compared with the prices of long-term bond to the changes in the rate of interest as the funds invested in the short-term bonds could be reinvested at a new rate of interest faster than the funds that are tied up in the long-term bonds.

Hence, the statement is false.

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Intermediate Financial Management (MindTap Course List)

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