In capital budgeting, term of bond which has great sensitivity to interest rates is______________?
Correct answer: A. Long-term bonds
- A. Long-term bonds
- B. Short-term bonds
- C. Internal term bonds
- D. External term bonds
Explanation
Long-term bonds are generally more sensitive to interest-rate changes because their cash flows extend further into the future and have a higher duration. Short-term bonds recover their principal sooner, limiting price sensitivity.
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About Business Finance
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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