Assuming interest rates are expected to fall, which of the following will most likely maximize price increase?

Question

Quizplus · Accepted Answer

30-year corporate bonds are likely to have the highest price increase when interest rates fall because they have a longer duration and are therefore more sensitive to changes in interest rates. When interest rates decrease, the present value of future cash flows from coupon payments and principal repayment increases, leading to an increase in bond prices. Commercial paper and U.S. Treasury bills have shorter maturities and lower interest rate risk, so their price increase may not be as high as that of long-term corporate bonds.

Assuming Interest Rates Are Expected to Fall, Which of the Following