Explore BrainMass

Explore BrainMass

    How interest rates affect long and short term bond prices

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    "The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rages are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices" Is this statement true or false? Please explain based on a 1 year and a 20 year bond.

    © BrainMass Inc. brainmass.com March 4, 2021, 8:26 pm ad1c9bdddf

    Solution Preview

    This is a false statement. Prices of long-term bonds are in fact more sensitive to interest rate changes than prices of short-term bonds. As maturity increases, price sensitivity to yield tends to ...

    Solution Summary

    The relationship between long and short term bond prices and interest rate fluctuations.