Use the following three statements to answer this question:
I.The prices of bonds with higher durations are more sensitive to interest rate changes than are those with lower durations.
II.All else being equal, durations will be higher when (1)market yields are lower, (2)bonds have longer maturities, and (3)bonds have lower coupons.
III.Duration is a measure of risk of the bond

Question

Quizplus · Accepted Answer

Statement I is true as higher duration bonds have greater price volatility in response to changes in interest rates than lower duration bonds.
Statement II is also true as durations will be higher under the given conditions, which is a basic concept of bond duration.
Statement III is also true, as duration is a measure of the bond's sensitivity to interest rate changes, and higher sensitivity implies higher risk.

Use the Following Three Statements to Answer This Question