Asked by Morghan Graper on Jul 23, 2024
Verified
All else the same, if interest rates fall, the percentage price change for long-term bonds will be greater than for short-term bonds.
Percentage Price Change
The percent difference in price of an asset or investment over a specified time period.
Long-Term Bonds
Debt securities with an original maturity of more than a decade, offering the potential for higher yields in return for longer exposure to interest rate risk.
Short-Term Bonds
Bonds with maturities typically less than five years, offering lower risk and lower return potential compared to longer-term bonds.
- Understand the implications of changes in interest rates on bond prices and payments.
Verified Answer
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Cliff ConwellJul 25, 2024
Final Answer :
True
Explanation :
Long-term bonds have a longer duration, which means they are more sensitive to changes in interest rates. Therefore, when interest rates fall, the percentage price increase of long-term bonds is generally greater than that of short-term bonds.
Learning Objectives
- Understand the implications of changes in interest rates on bond prices and payments.