Bonds with longer maturities are more sensitive to interest rate movements than bonds that have shorter maturities.

Question

Quizplus · Accepted Answer

Bonds with longer maturities have a longer duration, which means they are more sensitive to changes in interest rates. When interest rates rise, the price of these longer-term bonds typically falls more significantly than that of shorter-term bonds. Conversely, when interest rates fall, the price of longer-term bonds usually increases more. This is because the present value of the bond's future cash flows (coupon payments and principal repayment) is more affected by changes in the discount rate (interest rate) when those cash flows are further in the future.

Bonds with Longer Maturities Are More Sensitive to Interest Rate