In regard to interest rate risk, short-term bonds:

1. have less interest rate risk than longer-term bonds.

2. and longer-term bonds have the same amount of interest rate risk because their coupon interest rates are fixed.

3. have more interest rate risk than longer-term bonds.

4. and longer-term bonds have no interest rate risk because their coupon interest rates are fixed.

Question

Business

Bowman

24 December, 09:20

In regard to interest rate risk, short-term bonds:

1. have less interest rate risk than longer-term bonds.

2. and longer-term bonds have the same amount of interest rate risk because their coupon interest rates are fixed.

3. have more interest rate risk than longer-term bonds.

4. and longer-term bonds have no interest rate risk because their coupon interest rates are fixed.

+4

Answers (1)

Know the Answer?

Virginia Nolan · Answer 1

1. have less interest rate risk than longer-term bonds.

Explanation:

In regard to interest rate risk, short-term bonds have less interest rate risk than longer-term bonds because in a longer period, there is a higher possibility that the interest rates will increase affecting the price of the bond. Also, in short-term bonds you have less pending payments which causes that a variation in the interest rate has a smaller effect in the price of the bond than in long-term bonds where you might have several payments left.