In general, price changes due to a given interest rate change will be:

Question

Quizplus · Accepted Answer

Price changes due to a given interest rate change will be larger as the term of the bond extends farther in time, and smaller as the maturity date nears. This is because longer-term bonds have more future cash flows that are affected by the interest rate change, amplifying the price change. As a bond approaches its maturity date, there are fewer future cash flows to be discounted, making the price less sensitive to interest rate changes.

In General, Price Changes Due to a Given Interest Rate