Question
Generally, the longer the duration of bond, the lower or higher the chance the bond price may change due to changes in yield
Answers
GPT-4o mini
Generally, the longer the duration of a bond, the **higher** the chance that the bond price may change due to changes in yield.
Duration measures a bond's sensitivity to interest rate changes. Longer-duration bonds tend to be more sensitive to interest rate fluctuations because they have cash flows that are received further into the future. This means that if yields rise, the present value of those future cash flows declines more significantly, leading to a larger decrease in the bond's price. Conversely, if yields decline, longer-duration bonds will see a more substantial increase in price. Thus, as duration increases, price volatility in response to interest rate changes also increases.
Duration measures a bond's sensitivity to interest rate changes. Longer-duration bonds tend to be more sensitive to interest rate fluctuations because they have cash flows that are received further into the future. This means that if yields rise, the present value of those future cash flows declines more significantly, leading to a larger decrease in the bond's price. Conversely, if yields decline, longer-duration bonds will see a more substantial increase in price. Thus, as duration increases, price volatility in response to interest rate changes also increases.