For small change in interest rates, market prices of bonds are inversely proportional to their
A)equity.
B)asset value.
C)liability value.
D)duration value.
E)none of the options.

Question

Quizplus · Accepted Answer

The market prices of bonds are inversely proportional to their duration value. Duration is a measure of sensitivity of a bond's price to changes in interest rates, and it takes into account both the time to maturity and the coupon payments. A bond with a longer duration will experience a larger price change in response to a small change in interest rates than a bond with a shorter duration. Therefore, the market prices of bonds are more affected by duration than by equity, asset value, or liability value.

For Small Change in Interest Rates, Market Prices of Bonds