Which of the following statements is correct?
A) Bonds with short-term maturities will have very little interest rate risk.
B) Bonds with large coupon payments will have very little interest rate risk.
C) Bonds with higher credit ratings will have very little interest rate risk.
D) All of the statements are correct.

Question

Quizplus · Accepted Answer

Bonds with short-term maturities will have lower interest rate risk compared to long-term maturity bonds because the holder will receive their principal back in a shorter period of time. This allows investors to reinvest their funds at the current market interest rate sooner, reducing their exposure to interest rate changes. Bonds with large coupon payments or higher credit ratings do not necessarily have lower interest rate risk as their prices could still be affected by changes in market interest rates.

Which of the Following Statements Is Correct