One of the basic relationships in interest rate theory is that, other things held constant, for a given change in the required rate of return, the the time to maturity, the the change in price.
A) longer; smaller.
B) shorter; larger.
C) longer; greater.
D) shorter; smaller.
E) Answers c and d are correct.

Question

Quizplus · Accepted Answer

The correct answer is E because both C and D are correct. As the time to maturity increases, the change in price for a given change in the required rate of return becomes greater. This is because the longer the time to maturity, the more time there is for the interest rate to change and affect the price of the bond.

One of the Basic Relationships in Interest Rate Theory Is