Between the two identical bonds having different maturity periods, the price of the ______ bond will change less than that of ______ bond.
Correct answer: B. short-term; long-term
- A. long-term; short-term
- B. short-term; long-term
- C. lower-coupon; higher-coupon
- D. None of the given options
Explanation
For the same change in interest rates, a short-term bond has less time for its discounted cash flows to be affected, so its price changes less. Long-term bonds are more sensitive to interest-rate movements.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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