Question
If you are holding two identical bonds, except that one matures in 10 years and the other matures in 5 years, which bond's price will be more sensitive to interest rate risk?
Multiple choice question.
Time to maturity does not affect interest rate risk
The 5-year bond
Both bonds are equally sensitive
The 10-year bond
Multiple choice question.
Time to maturity does not affect interest rate risk
The 5-year bond
Both bonds are equally sensitive
The 10-year bond
Answers
GPT-4o mini
The bond's price sensitivity to interest rate risk increases with time to maturity. Therefore, the correct answer is:
**The 10-year bond**
This bond will be more sensitive to changes in interest rates compared to the 5-year bond.
**The 10-year bond**
This bond will be more sensitive to changes in interest rates compared to the 5-year bond.