A bond's price volatility _________ at a/an _________ rate as maturity increases.

Question

Quizplus · Accepted Answer

Bond price volatility increases at a decreasing rate as maturity increases. This is due to the fact that as bond maturity increases, the impact of changes in interest rates on the bond price decreases. Therefore, the percentage change in bond price for a given change in interest rates becomes smaller as maturity increases, leading to decreasing volatility. However, while the rate of increase in volatility decreases, volatility itself still increases with maturity, as the bond becomes more sensitive to changes in interest rates.

A Bond's Price Volatility _________ at A/an _________ Rate as Maturity

A Bond's Price Volatility _ at A/an _ Rate as Maturity