Interest rates have increased by 50 basis points (0.5%). Which of the following bonds will decline most in price? All of the bonds have AA ratings.

Question

Quizplus · Accepted Answer

Generally, longer-dated bonds are more sensitive to changes in interest rates than shorter-dated bonds. This is because there is more uncertainty over the long term and more time for interest rate changes to occur. Therefore, the bond that matures in 10 years is likely to decline most in price. The bond that matures in 10 days will have the least sensitivity to changes in interest rates, and the bond that matures in 5 years will have intermediate sensitivity.

Interest Rates Have Increased by 50 Basis Points (0