A change in interest rates has effect on prices of bonds than on prices of bonds.
A)a larger; short-term; long-term
B)a larger; long-term; short-term
C)a smaller; long-term; short-term
D)the same; long term; short-term

Question

Quizplus · Accepted Answer

A change in interest rates has a larger effect on prices of long-term bonds than on prices of short-term bonds. This is due to the fact that long-term bonds have a longer time frame until maturity, which means that there is a greater uncertainty about future interest rate changes. As a result, investors demand a higher premium for holding long-term bonds, making their prices more sensitive to changes in interest rates.

A Change in Interest Rates Has Effect on Prices of Bonds