For a given change in interest rates, the change in price for each additional year of maturity of a fixed-rate asset is smaller as the maturity increases.

Question

Quizplus · Accepted Answer

This is because the longer the maturity of a fixed-rate asset, the higher its interest rate risk, which means that its price is more sensitive to changes in interest rates. However, as a fixed-rate asset approaches maturity, its interest rate risk decreases as the remaining time for interest rate fluctuations decreases. Therefore, the change in price for each additional year of maturity becomes smaller as the maturity increases.

For a Given Change in Interest Rates, the Change in Price