Which one of the following statements is correct? 1. The time to maturity has no

Question

Which one of the following statements is correct? 1. The time to maturity has no effect on the response of a bond’s price to a change in the bond’s yield to maturity. 2. Short-term bonds are more interest rate sensitive than long-term bonds. 3. The magnitude of price increases is greater than that of price decreases for a given absolute change in the yield to maturity. 4. Bonds prices are directly related to bond yields. 5. High-coupon bonds are more interest rate sensitive than low-coupon bonds.

Explanation / Answer

Correct option is > 3. The magnitude of price increases is greater than that of price decreases for a given absolute change in the yield to maturity.

.

The change in price for falling yield is higher in terms of percentage is higher than in case of change in price for rising yield in terms of percentage.

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