An equal increase in all bond interest rates
A)increases the return to all bond maturities by an equal amount.
B)decreases the return to all bond maturities by an equal amount.
C)has no effect on the returns to bonds.
D)decreases long-term bond returns more than short-term bond returns.

Question

Quizplus · Accepted Answer

An equal increase in all bond interest rates decreases long-term bond returns more than short-term bond returns because long-term bonds are more sensitive to interest rate changes due to their longer duration. This means their prices decrease more significantly in response to an increase in interest rates, leading to a greater decrease in returns compared to short-term bonds.

An Equal Increase in All Bond Interest Rates