Which of the following relationships does NOT hold in the pricing of fixed-rate assets given changes in market rate?
A)A decrease in interest rates generally leads to an increase in the value of assets.
B)Longer maturity assets have greater changes in price than shorter maturity assets for given changes in interest rates.
C)The absolute change in price per unit of maturity time for given changes in interest rates decreases over time, although the relative changes actually increase.
D)For a given percentage decrease in interest rates, assets will increase in price more than they will decrease in price for the same, but opposite increase in rates.
E)None of the options.

Question

Quizplus · Accepted Answer

Option C is incorrect because it misrepresents the concept of duration and convexity in bond pricing. The absolute change in price does not decrease over time for a given change in interest rates. Instead, longer maturity assets typically exhibit greater sensitivity to interest rate changes, and the relationship between interest rate changes and price changes is not linear due to convexity.

Which of the Following Relationships Does NOT Hold in the Pricing