Two years ago, Maple Enterprises issued 4%, 20-year bonds, and Temple Corp issued 4%, 10-year bonds. Since their time of issue, interest rates have increased. Which of the following statements is true of each firm's bond prices in the market, assuming they have equal risk?

Question

Quizplus · Accepted Answer

Longer-term bonds, like Maple Enterprises' 20-year bonds, are more sensitive to interest rate changes than shorter-term bonds, like Temple Corp's 10-year bonds. Therefore, with an increase in interest rates, the price of Maple's bonds would decrease more significantly than Temple's.

Two Years Ago, Maple Enterprises Issued 4%, 20-Year Bonds, and Temple