Finance
"The value of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates 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?
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Answers
This statement is true. Long-term bonds are more sensitive to changing economic conditions such as inflation and growth than short-term bonds. As interest rates go up, the market value of bonds becomes less attractive to investors and so their market price decreases. Conversely, when interest rates decline, the market price of longer-dated bonds tends to increase as the bonds become more desirable to investors. Therefore, short-term bonds are more sensitive to interest rate changes than long-term bonds.
