A three-year bond with a current yield of 10% per annum and a duration of 2.76 years,when compared with a four-year bond with a current yield of 12% per annum and duration of 3.43 years,will _______ when interest rates rise.
A) have a greater fall in price
B) have a smaller fall in price
C) have the greater interest rate exposure
D) not alter in price

Question

Quizplus · Accepted Answer

The bond with a shorter duration (2.76 years vs. 3.43 years) will have a smaller fall in price when interest rates rise, as duration measures the sensitivity of a bond's price to changes in interest rates.

A Three-Year Bond with a Current Yield of 10% Per