Which of the following is true regarding fluctuations in the prices of bonds?

Question

Quizplus · Accepted Answer

Fluctuations in the prices of bonds are primarily impacted by changes in interest rates. When interest rates rise, investors demand higher returns on their investments, leading to a decrease in bond prices. As interest rates decrease, demand for bonds rises, leading to an increase in prices. Short-term bonds are less affected by interest rate fluctuations, so they are often preferred in a low-interest-rate environment. However, when interest rates are rising, it is generally better to avoid bonds with short-term maturities because they will have to be reinvested at lower rates. Therefore, option A and B are both incorrect while option C is correct.

Which of the Following Is True Regarding Fluctuations in the Prices