Question

Which of the following statements is CORRECT? Group of answer choices The risk that cashflows will...

Which of the following statements is CORRECT?

Group of answer choices

The risk that cashflows will have to be reinvested in the future at lower rates, pushes investors to require higher rates from shorter term bonds, compared to similar longer term bonds.

The longer the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates.

All of the above are correct.

None of the above is correct.

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Answer #1

the correct statement is

The longer the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates.

Longer maturity leads to a greater change in the value of bond on change in interest rates as bond value is the discounted value of all future cash flows and cash flows are more in the bond with longer maturity

The risk that cashflows will have to be reinvested in the future at lower rates will push investors towards long term bonds and not short term bonds

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