A bond with short maturity has less "interest rate risk" than a bond with long maturity...
A bond with short maturity has less "interest rate risk" than a bond with long maturity when all other features—coupon interest rate, par value, and interest payment frequency—are the same.
TRUE or FALSE
Please Explain answer. Thanks in advance.
Homework Answers
Answer: The given statement is true.
Reasons:
i)There is less probability that the interest rates will change
substantially over short term.
ii)We use interest rate to discount the future cash flows of a bond
to determine the bond price, if the interest rate increases, the
bond price will fall. For short term bonds this change in price
will be less as compared to the bonds with longer time period. So,
the risk is high for long maturity bonds compared to short maturity
bonds.
Add Answer to:
A bond with short maturity has less "interest rate risk" than a
bond with long maturity...
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