A company has two outstanding bonds with the same features,apart from the maturity date.Bond A matures in five years,while bond B matures in 10 years.If the market interest rate changes by 5%:
A) bond A will have the greater change in price.
B) bond B will have the greater change in price.
C) the price of the bonds will not alter.
D) the price of the bonds will change by the same amount.

Question

Quizplus · Accepted Answer

Bond B, with a longer maturity, is more sensitive to changes in interest rates. This means that its price will change more than Bond A's price when the market interest rate changes by 5%.

A Company Has Two Outstanding Bonds with the Same Features,apart