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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is that statement true or false? Explain. (Hint: Make up a “reasonable” example based on a 1-year and a 20-year bond to help answer the question.)

Summary Introduction

To identify: Whether the given statement is true or false.

Introduction:

Bond Valuation: Bond valuation refers to the evaluation of bonds value at any point of time which can be used for decision making. Valuation of bond is done for comparison and analysis.

Explanation
  • For example: Investment in bond with 20-years maturity period is more risky than bond with 1-year maturity period.
  • Due to higher interest rate risk in lo...

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