Question

Which statement is correct? a. Short-term bond’s price is more sensitive to interest rate fluctuations b. None of the others is correct c. Short-term bond’s price is not sensitive to interest rate fluctuations d. Long-term bond’s price is more sensitive to interest rate fluctuations

Answer 1

Answer: Option D

Explanation It is a common fact that bonds having longer term maturities have higher interest rate risk as compared to the bonds having short term maturities.

This, is due to the fact that market yield and price of bond have inverse relationship. Thus, the bonds having longer term periods to maturity will face more interest rate fluctuations as compared to short term bonds, that's why long term bonds price is more sensitive to interest rate changes.