general finance terms
general finance terms
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Finance question?
The values of outstanding bonds change whenever the rate of change of interest. In general, interest rates short term are more volatile than interest rates over time. Therefore, prices of short-term bonds are more sensitive to changes in rates interest rates on bonds are long term … T / F explain
False because the time factor. A change in the interest rate of 90 days T-bill only influence the price of one quarter of one year. So if rates rose 1% in a bill 90 days you own faced such an opportunity slip to make that additional 1% for one quarter to an annual interest would lose only .25%. You can buy a new one in 90 days at the new rate when yours matures. With a bill Treasury 30 years a change of 1% would mean a loss, an opportunity cost for the entire duration or 120 quarts! So for the * same percentage change in rates of the 30 years the rates of the price would be 120 times more sensitive. But why the long rates are less volitile because they try predict the longer-term rates because the price is more sensitive to rates. There is a balance. Long-term rates are less sensitive but more volitile. The short-term rates are more volitile but the price is less sensitive due to the short period of time.
