Asked by Kanidra Stringer on Apr 27, 2024
Verified
Which of the following arises because long-term bond prices change more with interest rate movements than short-term bond prices?
A) Liquidity risk
B) Maturity risk
C) Default risk
D) Inflation risk
Maturity Risk
The risk of loss to an investor from changes in the price of a bond that arise from changes in the market interest rate. Also called price risk and interest rate risk. The term maturity risk emphasizes the fact that interest-induced price changes are larger with longer maturities.
Bond Prices
The market price for which a bond is bought or sold, influenced by interest rates, credit quality, and other factors.
Interest Rate Movements
Fluctuations in the interest rate over time which can affect borrowing costs and investment returns.
- Acquaint oneself with the principle of risk premiums and their utilization across various bond categories.
Verified Answer
JJ
Jackson JiangMay 02, 2024
Final Answer :
B
Explanation :
Maturity risk arises because long-term bonds have more exposure to interest rate movements compared to short-term bonds, leading to greater price fluctuation.
Learning Objectives
- Acquaint oneself with the principle of risk premiums and their utilization across various bond categories.