Which of the following statements is correct?
A) Bonds with lower coupons have lower interest rate risk.
B) Long-term bonds have more interest rate risk than short-term bonds.
C) Short-term bonds with high coupons have high interest rate risk.
D) Zero-coupon bonds do not have interest rate risk.

Question

Quizplus · Accepted Answer

Long-term bonds are more sensitive to changes in interest rates compared to short-term bonds, meaning they have higher interest rate risk. This is because the present value of their future cash flows (which are further out in the future) is more affected by changes in interest rates.

Which of the Following Statements Is Correct