Asked by Taylor Eakin on May 07, 2024
Verified
A bond that had a 20-year original maturity with 1 year left to maturity has more interest rate price risk than a 10-year original maturity bond with 1 year left to maturity.(Assume that the bonds have equal default risk and equal coupon rates,and they cannot be called.)
Interest Rate Price Risk
The risk of losses in the values of financial instruments due to fluctuations in interest rates.
Original Maturity
This refers to the duration from the issuance of a bond or other fixed-income security until its due date.
Default Risk
The risk that a borrower fails to make the required payments on their debt obligation.
- Understand the implications of bond maturities and how they affect interest rate risk.
Verified Answer
CB
CLINTON BrooksMay 10, 2024
Final Answer :
False
Explanation :
Both bonds have the same duration to maturity (1 year left), so their interest rate price risk is essentially the same, regardless of their original maturity lengths.
Learning Objectives
- Understand the implications of bond maturities and how they affect interest rate risk.