Which of the following are true about the interest-rate sensitivity of bonds?I) Bond prices and yields are inversely related.II) Prices of long-term bonds tend to be more sensitive to interest-rate changes than prices of short-term bonds.III) Interest-rate risk is correlated with the bond's coupon rate.IV) The sensitivity of a bond's price to a change in its yield to maturity is inversely related to the yield to maturity at which the bond is currently selling.
A) I and II
B) I and III
C) I, II, and IV
D) II, III, and IV
E) I, II, III, and IV

Question

Quizplus · Accepted Answer

I) Bond prices and yields are inversely related - this is a fundamental principle of bond investing. II) Long-term bonds are indeed more sensitive to interest rate changes than short-term bonds due to their longer duration. IV) The sensitivity of a bond's price to a change in its yield to maturity is inversely related to the yield to maturity at which the bond is currently selling, meaning lower-yield bonds are more price-sensitive to yield changes. III is not correct because interest-rate risk is primarily related to the bond's duration, not directly to its coupon rate.

Which of the Following Are True About the Interest-Rate Sensitivity