Assuming other things are held constant, which of the following is correct?
A)The change in the price of a bond due to a change in the interest rate is more significant in bonds with longer maturity periods.
B)For a bond of any maturity, a given percentage point increase in the interest rate causes a larger dollar capital gain than the capital loss stemming from an identical decrease in the interest rate.
C)For any given maturity, a percentage point decrease in the interest rate causes a smaller dollar capital loss than the capital gain stemming from an identical increase in the interest rate.
D)In the year of purchase of bonds, an investor gets a deduction for the difference in the market value of bonds purchased at a premium and the face value of the bonds.
E)A 20-year bond has more interest rate reinvestment risk than a two-year bond.

Question

Quizplus · Accepted Answer

The price of a bond is more sensitive to interest rate changes when it has a longer maturity period, due to the longer duration over which cash flows are affected by the rate change.

Assuming Other Things Are Held Constant, Which of the Following