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

The longer the maturity of the bond, the more sensitive it is to changes in interest rates. Therefore, the bond that matures in 10 years will decline the most in price. Bond A, which matures in 10 days, will not be affected significantly by a 0.5% change in interest rates. Bond B, which matures in five years, will be affected but to a lesser extent than Bond C.

Interest Rates Have Increased by 50 Basis Points (0