Question

What are the benefits of a long-term bond over a short-term bond?
a.
Long-term bonds have fewer risks than short-term bonds.
b.
Long-term bonds have more risks associated with them, and bring in lower returns for the initial investment.
c.
While long-term bonds have more risks associated with them, they have the potential to bring in higher returns for the initial investment.
d.
Long-term bonds always have a higher return for the investment.

Answer 1

c.

Long-term bonds usually carry more risks (interest-rate and inflation risk, longer exposure to credit changes) but typically offer higher yields to compensate, so they can potentially bring higher returns. (Not guaranteed — yields can be lower in an inverted yield-curve environment.)