The values of outstanding bonds change whenever the going rate of interest changes. Ingeneral, 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 that statement true or false? Explain. (Hint: Make up a “reasonable” examplebased on a 1-year and a 20-year bond to help answer the question.)
The values of outstanding bonds change whenever the going rate of interest changes. Ingeneral, 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 that statement true or false? Explain. (Hint: Make up a “reasonable” examplebased on a 1-year and a 20-year bond to help answer the question.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The values of outstanding bonds change whenever the going rate of interest changes. In
general, short-term interest rates are more volatile than long-term interest rates. Therefore,
short-term
based on a 1-year and a 20-year bond to help answer the question.)
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