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If interest rates rise after a bond issue, what will happen to the bond’s price and...

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Finance

If interest rates rise after a bond issue, what will happen tothe bond’s price and YTM? Does the time to maturity affect theextent to which interest rate changes affect the bond’s price? Thevalues of outstanding bonds change whenever the going rate ofinterest changes. In general, short-term interest rates are morevolatile than long-term interest rates. Therefore, short-term bondprices are more sensitive to interest rate changes than arelong-term bond prices. Is that statement true or false? Explain.(Hint: Make up a “reasonable” example based on a 1-year and a20-year bond to help answer the question.)

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3.8 Ratings (457 Votes)
Answer The statement is False Explanation As the time to maturity of a bond increases sensitivity of bond price to change in interest rate increases Hence shortterm bond prices are less sensitive to interest rate changes than are longterm bond prices Let us    See Answer
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