Longer-term bonds: Bonds with long maturity period are called as longer-term bonds. These bonds carry high risk because an alteration in the interest rate or probability of higher inflation in the economy over a longer period can reduce bond’s price. Shorter term bonds Bonds with short maturity period are called as shorter-term bonds. Short duration reduces the risk as well as interest rates on these bonds. An investor who aims to earn the profit between the redemption value and investment cost will invest in shorter-term bonds. Interest rate The interest rate is simply the rate at which annual coupon payment is made by the issuer of a bond. The rate is set at the time of issue of the bond and the same rate is mentioned in the bond certificate. To determine: The sensitivity of longer-term bonds in comparison to shorter-term bonds with changes in interest

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Chapter 6, Problem 7CT

Summary Introduction

Longer-term bonds:

Bonds with long maturity period are called as longer-term bonds. These bonds carry high risk because an alteration in the interest rate or probability of higher inflation in the economy over a longer period can reduce bond’s price.

Shorter term bonds

Bonds with short maturity period are called as shorter-term bonds. Short duration reduces the risk as well as interest rates on these bonds. An investor who aims to earn the profit between the redemption value and investment cost will invest in shorter-term bonds.

Interest rate

The interest rate is simply the rate at which annual coupon payment is made by the issuer of a bond. The rate is set at the time of issue of the bond and the same rate is mentioned in the bond certificate.

To determine:

The sensitivity of longer-term bonds in comparison to shorter-term bonds with changes in interest

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