Which ONE of the following statements is true?
A) The longer the maturity of a security, the greater its interest rate risk.
B) If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping.
C) The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.
D) The interest risk premium always adds a downward bias to the slope of the yield curve.

Question

Quizplus · Accepted Answer

The longer the maturity of a security, the more sensitive it is to changes in interest rates, and therefore, the greater its interest rate risk. This is because the value of a security with a longer maturity will fluctuate more as interest rates change over time.

Which ONE of the Following Statements Is True