If you thought interest rates were going to rise, would you prefer longer- or shorter- term...
If you thought interest rates were going to rise, would you prefer longer- or shorter- term bonds in your portfolio? Why
Homework Answers
The interest rates and prices of bonds move in different directions. If the interest rates are going to rise, then the prices of the bonds will fall. The prices of the short term maturity bond will fall slightly lower than the long term maturity bond. Hence, i will prefer the short term maturity bonds in my portfolio.
The higher the maturity of the bond, the bond becomes more sensitive to the changes in the interest rates.
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