In capital budgeting, the 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 more sensitive to interest-rate changes because their distant cash flows are discounted over a longer period. Short-term bonds generally experience smaller price changes for the same rate movement.
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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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