Because Short-Term Interest Rates Are Much More Volatile Than Long-Term

question 12

True/False

Because short-term interest rates are much more volatile than long-term rates, you would, in the real world, generally be subject to much more interest rate price risk if you purchased a 30-day bond than if you bought a 30-year bond.

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Definitions:

Bond Principle

The face value of a bond, which is the amount to be repaid by the issuer to the bondholder at maturity.

Bankruptcy

A legal process wherein individuals or entities declare their inability to pay back their debts.

Sinking Fund

A fund established by a borrower, setting aside revenue over time to repay a debt or replace a depreciating asset in the future.

Call Provisions

Terms in a bond contract that allow the issuer to repurchase and retire the bond at a specified price before maturity, protecting against interest rate risk.