If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,which bond would you prefer to have been holding?
A) A bond with one year to maturity
B) A bond with five years to maturity
C) A bond with ten years to maturity
D) A bond with twenty years to maturity

Question

Quizplus · Accepted Answer

Since the interest rates have risen, the value of bonds would have decreased. Thus, the bond with the shortest maturity (one year) would suffer the least from the rise in interest rates. The longer the duration of the bond, the greater the impact of rising interest rates on its value.

If the Interest Rates on All Bonds Rise from 5