All else equal, which bond’s price is more affected by a change in interest rates, a short-term bond or a longer-term bond? Why?

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All else equal, which bond’s price is more affected by a change in interest rates, a short-term bond or a longer-term bond? Why?

 

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All else equal, a long-term bond experiences larger price changes when interest rates change than a short-term bond.  A bond’s price is the present value of all its cash flows.  Changes in the discount rate (the interest rate) impact present values more for cash flows that are further out in time.

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