Two bonds, one a 30-year bond and the other a 1-year bond, have the same interest rate. If the interest rate in the economy falls, the value of the:

Question

Quizplus · Accepted Answer

When interest rates fall, the value of existing bonds rises because they have higher interest rates than new bonds issued at the current lower rates. Long-term bonds are more sensitive to interest rate changes than short-term bonds, so their value increases more.

Two Bonds, One a 30-Year Bond and the Other a 1-Year