For bonds, price sensitivity to a given change in interest rates is generally greater the longer before the bond matures.

Question

Quizplus · Accepted Answer

This is because longer-term bonds have a greater amount of future cash flows compared to short-term bonds, making them more affected by changes in interest rates. As interest rates rise, the present value of future cash flows decreases, leading to a larger decrease in the price of a longer-term bond. Similarly, as interest rates fall, the present value of future cash flows increases, leading to a larger increase in the price of a longer-term bond.

For Bonds, Price Sensitivity to a Given Change in Interest