(I)Prices of longer-maturity bonds respond more dramatically to changes in interest rates. (II)Prices and returns for long-term bonds are less volatile than those for short-term bonds.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.

Question

Quizplus · Accepted Answer

The statement (I) is true as longer-maturity bonds are more sensitive to changes in interest rates. On the other hand, statement (II) is false as long-term bonds tend to have higher volatility due to their longer duration, which leads to greater fluctuations in prices and returns.

(I)Prices of Longer-Maturity Bonds Respond More Dramatically to Changes in Interest